ROFILES IN INNOVATION · EQUITY RESEARCH | September 27, 2016 Faster, Stronger, Smaller, Lighter PROFILES IN INNOVATION Advanced Materials Jay Shyam, CFA +61(3)9679-1972 [email protected]

Craig Sainsbury +61(3)9679-1778

[email protected] Sachs Australia Pty Ltd.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision. For Reg AC certification and other important disclosures, see the DisclosureAppendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are notregistered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

EQUITY RESEARCH | September 27, 2016

Faster, Stronger, Smaller, Lighter

P R O F I L E S I N I N N O V A T I O NAdvanced Materials

Jay Shyam, CFA+61(3)9679-1972

[email protected] Sachs Australia Pty Ltd.

Shuhei Nakamura +81(3)6437-9932

[email protected] Sachs Japan Co., Ltd.

Toshiya Hari (646) 446-1759

[email protected], Sachs & Co.

Marcus Shin+82(2)3788-1154

[email protected] Sachs (Asia) L.L.C., Seoul Branch

Innovation isn’t always digital. Theinsatiable need to make products faster,stronger, smaller and lighter is driving thedevelopment of new and enhancedAdvanced Materials with properties out ofreach of prior generations. In this report,the latest in our Profiles in Innovationseries, we explore where AdvancedMaterials science is on the cusp ofbreaking new boundaries and making theleap to commercialisation, and we chartthe interconnected global ecosystem ofpublic and private companies ripe fordisruption. We hone in on advances in fourkey areas—Nanotechnology, Graphene,OLEDs and Cheating Moore’s Law—thatcan address some of the biggest businesschallenges of the day, from rolling out a 5Gnetwork to improving the efficacy ofcancer drugs to creating energy storage solutions.

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September 27, 2016 Profiles in Innovation

Goldman Sachs Global Investment Research 2

Table of contents

Executive summary: The DNA of Disruption 3

Advanced materials in numbers 7

Key players 8

Overview of our case studies 9

Nanotechnology: A very small big deal 11 Nanotechnology – the materials toolbox of the 21ST century 12 The benefits of nanotechnology: The world’s building blocks 13 Nanomanufacturing: A bottom-up future 14 The nanotech microscope evolution 17 Commercialising nanotechnology 18 Additives – the here and now of nanotechnology 19

Graphene 21 The history of graphene and its benefits 22 The buckyball – Generation X’s cautionary tale on graphene 23 Where’s my Indium? 26 Graphene manufacturing processes 27 Potential applications for graphene 29

OLEDs: Bending the future 31 A brief history of OLEDs and why they matter 32 The hype: Present-day applications already attractive 34 The promise: Mobile technology, all roads lead to OLEDs 35 The future of television: OLEDs or quantum dots? 37 3D TVs: A cautionary tale 39

Cheating Moore’s Law 41 Semiconductors 101 43 Getting smaller & smaller… a history of process improvement 44 Materials and construction to help cheat Moore’s Law 46 Commercialising the evolution of the semiconductor 49

Case studies 51 Water filtration: Creating a sustainable future 52 Energy storage: The shift to renewables 54 Nanomedicine: A plethora of possibility 56 5G communications: Speeding up the future 62 An interview with Dr. John Chen, Phoenix Venture Partners 65

Disclosure Appendix 67

Contributing authors: Craig Sainsbury; Jay Shyam, CFA; Shuhei Nakamura; Toshiya Hari; Charles Long; Marcus Shin;

Robert D. Boroujerdi; Hugo Scott-Gall; Brian Rooney; Shin Horie; Richard Manley; Ian Abbott; Brian Lee, CFA; Matthew

McNee; Grace Fulton; Giuni Lee; Ken Lek; Ayaka Misonou; Frank He; Julian Zhu; Peter Callahan; Eddie Ow, CFA; Anita

Dinshaw; Isabelle Dawson

This is the sixth report in our Profiles in Innovation series analyzing emerging technologies that are creating profit

pools and disrupting old ones. Access previous reports in the series below or visit our portal to learn more and see

related resources.

• Virtual and Augmented Reality

• Drones

• Factory of the Future

• Blockchain

• Precision Farming

Get a 3-minute audio summary of this report from author Craig Sainsbury. Listen here

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Executive summary: The DNA of Disruption

Historians often refer to pivotal eras in human history by the materials that dominated

them ‒ most notably, the Stone Age, the Bronze Age, and the Iron Age. Those times are

long past, however, and modern man finds it easy to believe the current era of human

history, the Digital Age, is held up by more abstract pillars ‒ like intellect, innovation or

communication. But that is only partly correct.

Materials remain crucial to human progress, and advanced materials (AMs) are the DNA of

disruption for things ‒ from the largest structures to the smallest electronic components.

Each revolution in semiconductors, metals, polymers, ceramics and other substances has

created and transformed new products and industries. Just as materials like concrete,

Velcro, Gore-Tex, plastic and aluminum were considered advanced at one point in time,

today the need to make products faster, stronger, smaller, and lighter has driven the

development of materials with properties out of reach of previous generations. Yet AMs

are spread so widely across industries, and their development and adoption is so uneven,

that the investment implications are exceptionally wide-ranging and can impact almost any

market. In this report ‒ the latest in our Profiles in Innovation series ‒ we focus on four

areas that we believe have the greatest chance of commercial impact:

1) Nanotechnology: The ability to understand and utilize the properties of materials at a

molecular level (an atom is 0.1nm wide) has the potential to offer benefits such as size

reduction and specialty material construction to continue to drive R&D and new

product creation.

2) Graphene: An allotrope of carbon, with properties of strength, conductivity and

transparency that stem from its unique 2D structure, is showing potential in a myriad

of applications from water filtration to semiconductors.

3) OLEDs utilise an organic compound based electroluminescent layer to emit light.

Smartphones and TVs have already taken advantage of their superior display and

flexibility, creating a pathway for new products that can fundamentally change mobile

technology and the consumer experience.

4) Cheating Moore’s Law, where the constant effort to fit more transistors onto smaller

chips is fueling the drive for new materials.

Exhibit 1: The development of AMs is driven by both push and pull forces

Source: Company data, Goldman Sachs Global Investment Research.

We explore how AMs can help solve critical real-world challenges—from water filtration to energy storage—in four case studies on pages 51 to 63.

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Why Advanced Materials and why now?

The benefits of new materials run the gamut from lowering costs by substituting for

something else to introducing capabilities that were previously impossible. History shows

the impact when an AM reaches widespread adoption, from the development of cement

and vulcanized rubber in the 19th century to stainless steel and nylon in the 20th.

Exhibit 2: A history of innovation through Advanced Materials

Source: Goldman Sachs Global Investment Research.

Year Advanced Material developed/created/discovered Creator/Developer

1824 Cement Joseph Aspdin

1825 Metallic alluminum produced Hans Christian Orsted

1839 Vulcanised Rubber Charles Goodyear

1839 Polystyrene Eduard Simon

1843 Vulcanite Thomas Hancock

1856 Celluloid Alexander Parkes

1879 Carbon Fiber Thomas Edison

1908 Cellophane Jacques E. Brandenberger

1909 Bakelite hard thermosetting plastic Leo Baekeland

1911 Superconductivity Heike Kamerlingh Onnes

1912 Stainless steel Harry Brearley

1924 Pyrex Corning Incorporated (Company)

1927 LED Oleg Losev

1931 Neoprene Julius Nieuwland

1931 Nylon Wallace Carothers

1935 LDPE Reginald Gibson/ Eric Fawcett

1938 Teflon (poly-tetrafluoroethylene) Roy Plunkett

1938 Fiberglass Owens Corning

1940 Titanium Sponge William Kroll

1941 Polyester W.K. Birtwhistle/ C.G. Ritchiethey

1947 Surgicel Ethicon (company)

1951 Velcro George de Mestral

1951 HDPE Paul Hogan/ Robert Banks

1954 Silicon solar cells Bell Laboratories (Company)

1954 Argon oxygen decarburization (AOD) refining Union Carbide Corporation (company)

1954 Styrofoam Ray McIntire

1958 Lycra Joseph Shivers

1959 Micropore 3M

1963 Gladwrap (shrink wrap) Dr Douglas Lyons Ford

1965 KEVLAR Stephanie Kwolek

1966 Gore-Tex Wilbert L Gore/ Robert W Gore

1968 Liquid crystal display (LCD) RCA (company

1970 Silica optical fibers Corning Incorporated (Company)

1970 Blu tack Alan Holloway

1974 Vicryl (polyglactin 910) Ethicon (company)

1982 PEEK Imperial Chemical Industries

1985 Fullerene molecule discovery Rice University

1985 Buckypaper Robert Curl/ Harold Kroto/ Richard Smalley

1986 First high temperature superconductor Alex Muller/ Georg Bednorz

1987 OLED Ching W Tang & Steven Van Slyke

1980s Zylon SRI International

1991 Lithium-Ion battery Sony Corporation

1991 Carbon Nanotubes Sumio Iijima

1993 Smart Pill Jerome Schentag

1994 Quantum Cascade Laser Bell Labs

1995 CMOS image sensor Eric Fossum

1998 Silicone Hydrogel Various

1990s M-5 (PIPD fibre) Akzo Nobel

1990s Vectran Celanese Acetate LLC

1990s Precious Metal Clay Masaki Morikawa

2001 Artificial liver Dr Kenneth Matsumura & Alin Foundation

2002 Nanotex Dr David Soane

2004 Graphene Andre Geim & Konstantin Novoselov

2007 Nanowire battery Various

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Whilst the path to success for a new material can often be winding and slow, new

materials’ ability to transform industry norms is massive. Indeed some of today’s

promising materials, such as graphene, have yet to fulfill their potential. Nevertheless, we

see multiple drivers in place that give us confidence that today’s wave of R&D in new

materials will overcome the hurdles to make a significant impact across industries. These

drivers include:

Miniaturization and the race to squeeze more capabilities into ever-smaller devices.

The urgent need to replace dwindling critical resources, such as clean water (see page

52) and rare earth metals like indium (see page 26).

Environmental concerns and demand to reduce energy use and waste.

The next generation of AMs is set to be driven by the intertwined and symbiotic

relationship between technology and materials science. On the one hand, the massive

advancement in computing power over the past 20 years gives scientists and

manufacturers the ability to study and structure materials at nano-scales. At the same time,

constant increases in computer power place pressure on the effort to continue doubling the

number of transistors that can be squeezed into a square inch of integrated circuit (as per

Moore’s Law). Thus, one of the key enablers of the modern development of AMs is itself

dependent on the successful development of new materials.

Out of the lab, into the world: Where can Advanced Materials make

a difference?

With the timing right for key AMs to make their mark, we offer case studies of four high-

impact applications:

1. Water filtration: With more than 600mn people living without access to potable water

and safe sanitation, quality water filtration has the ability to transform society as a

whole. Graphene filtration technologies can enhance existing filtration systems with

improved speed, scale and costs. With US$10bn spent annually on emerging country

water quality and US$90bn on bottled water globally, the financial opportunity is

significant.

2. Energy storage: Continued advances in energy storage and efficiency are key to

managing the demands of a growing population and curbing carbon emissions.

Nanotech is set to play a vital role in this effort, with the potential to rapidly improve

battery charge times and performance.

3. Nanomedicine: Prescription drugs have been a key part of medicinal recuperation for

decades, but nanotech has the potential to make them safer and more precise by

engineering pills to target impacted areas instead of the whole body. For cancer

patients, that means chemotherapy could be delivered directly to the impacted tumor

cells, lessening the side effects and potentially speeding recovery. With the cancer

drug market a US$100bn industry, nanotech has the ability to generate significant

value for companies that can commercialise the technology.

4. Next-gen communications: The coming 5G revolution will increase demand for

materials capable of handling high-spectrum frequencies up to 100GHz. Gallium nitride

fits this bill, offering better performance than traditional silicon-based technologies on

the market today. Its higher bandgap and ability to withstand higher voltages also

make it attractive to chip companies working in defense applications.

We highlight public and private company exposures to Advanced Material development in our ecosystem on page 8.

Advanced Materials have now penetrated the VC space; we interview Dr. John Chen, managing partner of an AM venture capital firm, on page 65.

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Exhibit 3: Revolution is dependent on symbiosis Technology and materials cycle

Exhibit 4: AMs are not isolated silos with many of the

materials and processes used in transformational

technology



We highlight public and private players at the intersection of promising AM technology and

the case studies we detail on pages 50-63, as well as incumbents at risk. The corporations

exposed to the sector are a mix of generalist innovators (such as Samsung, 3M, Lockheed

Martin, and BASF) and specialist innovators that are predominantly emerging unlisted

corporations (such as Cyclics Corporation, Graphene Laboratories, and Solicore).

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ADVANCED MATERIALS in numbers

The strength of single-layer graphene compared to steel. (p. 24)

300x

The year nanotechnology—the concept of

engineering materials with atomic

precision—was first discussed. (p. 13) 1959

The year graphene—a material that classifies as a subset of

nanotechnology and a cousin of the common LCD material

graphite—was first isolated in its critical single-layer form. (p.

22)

2004

Graphene’s electrical current density compared to copper, a

commonly used material in semiconductors. 25% of patents filed

for graphene so far relate to semiconductor technology. (p. 24)

10,000,000x

The viewing angle smartphones could

offer by using flexible OLED

displays—essentially the ability to fold

your smartphone in half and open it to

lay flat. (p. 32)

180˚

VISUALIZING NANOPARTICLES: SMALL SIZE, BIG AREA

The diameter of a hair follicle in nanometers. (p. 12) 75,000

25,400,000 An inch in nanometers. (p. 12)

1,536 mm2

9,600 m2

The (limited) number of registered

products that use nanoparticles today. (p.

19) 1,944

THE LONG WINDUP IN NANOTECH

A ‘MIRACLE MATERIAL’ OF A COUSIN

90%

The decline in graphene production costs in the past three years.

We estimate costs need to fall another 90% to make graphene

commercially competitive. (p. 27)

A BENDABLE SMARTPHONE

The electron mobility advantage of III-V

materials (materials containing elements

from groups III and V of the periodic

table) relative to silicon, the current

material of choice in semiconductors.

Companies are seeking to integrate III-V

materials in chips to improve processing

power. (p. 47)

50x

FASTER COMPUTING

$25

billion

Our estimate for the total addressable

market for OLEDs by 2018. (p. 34)

The surface area of a standard playing dice. (p. 14)

The surface area of a standard playing dice when deconstructed into its nanoparticle components.

That’s the equivalent of 8 Olympic-sized swimming pools. (p. 14)

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The EcosystemAdvanced Materials - Key Players

Leading Conglomerates Samsung3MLockheed MartinBASFJohnson MattheyNokiaBayerShowa DenkoToshibaL'Oreal

Advanced Chips XXXXXX

GrapheneGraphenaGraphene LaborotoriesShowa DenkoFuture CarbonAngstrom MaterialsCVD Equipment corporationAMO GmbHApplied Graphene Materials

Nano CoatingsCetelon NanotechnikNnaovere TechnologiesDiamon-Fusion International

Nanomedicine & NanobiologyXXXXXX

OLED Samsung ElectronicsLGAppleUniversal displayApplied MaterialsUlvac

Nano SolarEcoark HoldingsSolicorePlextronics3MUniversal Display CorpQD Vision Inc

NanocompositesAlanod-Solar3M ESPEElementis ArkemaCyclics CorporationDu PontShowa Denko

A sample of companies with exposure

private company

Advanced Materials - Key PlayersA sample of companies with exposure

private company

NanocompositesAlanod-Solar3M ESPEElementis ArkemaCyclics CorporationDuPontShowa DenkoPentairKochSony

Nanomedicine & NanobiologyMerrimack PharmaceuticalsIntellia TherapeuticsEditas MedicineEli LillyFujifilmKonica MinoltaNanoCarrier3-D Matrix CellSeed

Advanced ChipsTokyo Electron

Cheating Moore’s LawIntelTSMCSamsung ElectronicsApplied MaterialsLam ResearchASMLTokyo ElectronQorvoMACOM

Generalist InvestorsSamsung Electronics3MLockheed MartinBASFJohnson MattheyNokiaBayerToray IndustriesL'OrealGE

GrapheneGrapheneaGraphene 3D LabGraphene LaboratoriesFutureCarbonAngstron MaterialsCVD Equipment CorporationAMO GmbHApplied Graphene MaterialsDongxu Optoelectronic Technology (000413.SZ)Xinjiang Zhongtai Chemical (002092.SZ)China Baoan Group (000009.SZ)Suzhou Jinfu New Material (300128.SZ)Haydale Graphene IndustriesDirecta PlusGraphene NanochemOCSiAlAbalonyx ASVorbeck MaterialsZapnGoAdvanced Graphene ProductsNanoXploreRS MinesGraphene Platform CorpElcora Advanced MaterialsChina Carbon Graphite GroupOsaka GasHEAD BVVittoriaYonex (Carbon nanotubes)

OLED Samsung ElectronicsLGAppleUniversal Display Applied MaterialsULVAC Valiant (002643.SZ)Puyang Huicheng (300481.SZ)Kangde Xin (002450.SZ)Sino Wealth Electronic (300327.SZ)Truly International (732.HK)Idemitsu Kosan (5019.T)Merck KGaACoherentCanon Konica MinoltaNissha PrintingJapan DisplaySharpSCREEN HoldingsSonyToshibaDai Nippon PrintingV-TechnologyFerrotec Hirata

NanosolarEcoArk BrightVolt (Solicore)Solvay (Plextronics)3MUniversal Display QD Vision

NanocoatingsP2iDowSiemensCetelon NanotechnikNanovere TechnologiesDiamon-Fusion International

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The EcosystemAdvanced Materials - Use Cases

Advanced materials used: Nanotechnology, graphene

How it works: Graphene oxide membranes are impermeable to all gases and vapors besides water, allowing for faster and better filtration. Select enablers/disrupters: Lockheed Martin, Dow, GE, Pentair, 3M, Koch, SiemensIncumbents at risk: Bottled water companies

Water Filtration

Advanced materials used: Nanotechnology, graphene, OLED

How it works: Nanotechnology can enhance the properties of bulk materials like fuel cells, solar cells and lithium ion batteries to improve their storage potential and recharge rates. Select enablers/disrupters: Sony, Toshiba, Manz, BASF, 3M, DuPontIncumbents at risk: XXX

Energy Storage

Advanced materials used: Nanotechnology

How it works: Nanoparticles can be engineered to target particular areas of the body and more precisely administer drugs with fewer side effects for the patient. Nanoparticles also have the potential to act as more efficient contrast agents and biomarkers, aiding doctors in disease detection and treatment. Select enablers/disrupters: XXXIncumbents at risk: XXX

Nanomedicine

Advanced material used: Gallium Nitride

How it works: Gallium Nitrade chips have a higher bandgap than other silicon-based radio frequency technologies, making them better suited to handle the high-spectrum frequencies of a 5G network. Select enablers/disrupters: Qorvo, MACOMIncumbents at risk: Gallium arsenide and silicon germanium producers

5G Communication

private company

The EcosystemAdvanced Materials - Case Studies

How it works: The demand for water is unwavering and ever-increasing, with advancements in water filtration technology key. Graphene oxide membranes are impermeable to all gases and vapours besides water, allowing for faster and better filtration. Working at thesingle-atom level, graphene water filters have a mesh with the accuracy to distinguish small percentage differences in atom sizes. The filters are also extraordinarily fast, with the potential to desalinate seawater in minutes.

Select enablers/disrupters: Lockheed Martin, Dow, GE, Pentair, 3M, Koch, Siemens Incumbents at risk: Nestle, Danone, The Coca Cola Company, Nongfu Spring, Pepsi Co.

Water Filtration

How it works: Energy storage solutions are the “holy grail” for renewables, but they’re also essential to maximise the efficiency and duration of traditional energy sources. Nanotechnology can be used to enhance the properties of bulk materials like fuel cells, solar cells, and lithium ion batteries to improve their storage potential and recharge rates. For example, in solar cells, an electric current can be created by using nanophotons to release electrons from a material. In addition, nanotechnology can be used to enhance the efficiency and sourcing of fossil fuels.

Select enablers/disrupters: Sony, Toshiba, Manz, BASF, 3M, DuPont Incumbents at risk: AGL, CLP Holdings, China Longyuan Power, Origin Energy

Energy Storage

How it works: The suite of applications for nanotechnology in medicine is vast--from creating biological machines to using nanoparticles to enhance drug delivery. Taking the latter as an example, nanoparticles can be engineered to target particular areas of the body and more precisely administer drugs with fewer side effects for the patient. Nanoparticles also have the potential to act as more efficient contrast agents and biomarkers, aiding doctors in disease detection and treatment.

Select enablers/disrupters: Merrimack, Intellia Therapeutics, Editas Medicine, Eli Lilly Incumbents at risk: Non-targeted therapies & traditional contrast agents; older nanomedicines threatened by generics (Teva)

Nanomedicine

How it works: With data volume per consumer increasing rapidly, the move to 5th Generation or “5G” communication is necessary and inevitable. To handle higher data loads, 5G networks will need to move into higher frequencies and provide faster data transmission. Gallium nitride chips have a higher bandgap than other silicon-based radio frequency technologies, making them well-suited to handle these new requirements.

Select enablers/disrupters: Qorvo, MACOM, Applied Materials, Lam Research, Tokyo ElectronIncumbents at risk: Gallium arsenide and silicon germanium producers

Next-Gen Communication

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The 70-year gap between the creation and commercialisation of Polyoxybenzylmethylenglycolanhydride —

or “Bakelite”— is a classic example of the long, non-linear yet opportunity-rich path to advanced material

(AM) penetration. Bakelite was the world’s first plastic and first non-natural AM, developed in the early

1900s and first patented in 1907. The ability to compression-press the material into molds and cure it within

minutes facilitated the mass production and adoption of low-cost telephones and radios in the 1930s.

The term Bakelite became synonymous with the style and Art Deco trend of products during the 1930s and

1940s and the material retains collector status today.

“One Word: Plastics…”

However, even with the impact of Bakelite in the 1930s, the uptake in plastic was slow and only really

accelerated by conflicts such as WWII and the Korean War. In 1950, global plastic consumption was just

1.5mt globally. It was not until the mid-1970s, some 70 years after the first patent for Bakelite was granted,

that plastics started to penetrate all aspects of our lives from TV sets to jet planes and everything in

between. The world now consumes around 300mtpa of plastics across thousands of applications with an

estimated revenue pool of US$370bn in the United States alone.

As was the case with Bakelite, there will always be early adopters of AM, but we generally find that

penetration into the masses is far harder to measure, and is influenced by a number of things. That said, the

world’s reliance on plastics to this day highlights the vast opportunities that advanced materials can help

unleash, as well as the profit pools available to AMs that provide an improvement on the status quo. This

crystallisation can take years, and even decades, but once we reach this inflection point, the opportunities

are likely to be vast and highly profitable.

Exhibit 1: Plastic production has increased markedly since the mid-1950s

Source: PlasticsEurope (PEMRG), Consultic

1950, 1.51976, 50

1985, 83

1989, 100

2002, 200

2009, 230

1985, 25

2009, 55

0

50

100

150

200

250

1950 1960 1970 1976 1980 1985 1989 1990 2000 2002 2009 2010

Mto

nne

World Europe

CASE STUDY

A Slow Build to Late Success: Lessons from Bakelite

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Nanotechnology: A very small big deal

KEY APPLICATIONS

NANOTECHNOLOGY

History: Approaching its seventh decade, but remains at forefront of innovation

Benefits: Allows us to enhance the unique properties of materials at the

nanoscale – offering benefits such as size reduction and specialty material

construction to continue to drive R&D and new product creation

Commercialisation: Current applications involve constructing nanomaterials

from larger bulk materials; next phase of commercialisation will focus on

“bottom-up” applications, or the self-assembly of atoms/molecules

Applications: Medicine, water filtration, quantum dots, biofouling (buildup of

water-based microorganisms on wetted surfaces), nanocomposites and particles,

cosmetics, computer chip manufacturing

Select company exposure: Lockheed Martin, 3M, Toray Industries, L’Oreal

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Nanotechnology: A very small big deal

Nanotechnology, an umbrella term that has been around since the 1970s, is broadly used

to describe the manipulation of matter on an atomic level. From a technical standpoint, a

nanometer (nm) is a billionth of a meter (and, for the mathematically minded, 1 x 10-9) . To

illustrate just how small this is, there are 25.4mn nm in an inch, a follicle of hair is around

75,000 nm in diameter, and a strand of DNA is 2.5 nm wide.

While nanotech may be approaching its first half century as a scientific field, it is only in its

infancy as a manufacturing process.

The first generation of nanotech commercialisation has focused on product improvement.

Cosmetics, paint, and sporting goods are all products that have been advanced through the

development of nanotech and the inclusion of nanoparticles (particles sized at 1-100nm

that behave as a unit with respect to transport and properties). Other end-products such as

solar cells, lithium ion batteries, and semiconductors have all made step changes in their

cost and performance dynamics through enhancements from nanotech.

The second phase of nanotech development entails building on what has already been

learned and developed in order to exploit the novel properties of materials and create

materials that exhibit multiple outstanding properties and are therefore particularly

valuable (such as graphene, which has a unique combination of strength, conductivity, and

transparency)

In our view, the long-term game changer will be the evolution of self-assembly and nano-

factories. The ability to create custom, unique materials can be used to help drive

improvements in fields such as semiconducting, nanomedicine through drug delivery

applications, and water filtration through improved catalysis properties.

Nanotechnology – the materials toolbox of the 21ST century

As AMs grow in sophistication, nanotech has increasingly become part of the materials

toolbox of the 21st century. We believe the ability to understand and utilize the properties of

materials at a molecular level have the potential to drive another industrial revolution.

Nanomanufacturing ‒ the development of products on the nanoscale ‒ is enabling the

commercialisation of the broader nanotech field. Constructing materials on the nanoscale

falls into two distinct approaches:

i) Top-down approach: The construction of nanomaterial from larger bulk materials.

ii) Bottom-up approach: the self-assembly of molecules/atoms through either the

application of external applied force or natural physical principals.

Whilst nanotech is not limited to these areas, we believe it has the greatest ability to

disrupt the status quo in the following areas:

Medicine: Using nanotech, molecules can deliver drugs directly to specific cells in the

human body, greatly reducing the adverse effects of some drug treatments

(particularly chemotherapy) and potentially improve patient outcomes (see Case Study

on page 55).

Water filtration: Nanotech is a possible solution to one of society’s most vexing

problems -- over 50% of the world’s population does not have access to potable

drinking water. Nano filters and nanocatalysis are central to this effort (see Case Study

on page 50).

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The history of nanotechnology

Nanotech’s focus on materials at the atomic level entails a multi-disciplinary approach ‒

one that transcends the fields of chemistry, engineering, physics, computing, molecular

biology and material science.

The first reference to the pursuit of “atomic precision” was contained in a speech in 1959

by noted physicist Richard Feynman. In the speech, entitled There’s plenty of room at the

bottom, Dr. Feynman noted that, “The principles of physics, as far as I can see, do not

speak against the possibility of maneuvering things atom by atom.” Although Dr.

Feynman’s speech did not attract very much fanfare at the time, it is now looked back on as

a seminal moment in the advent of nanotech.

The concept of atomic engineering was furthered through the 1960s and 1970s, and

Japanese scientist Norio Taniguchi coined the term “nanotechnology” in 1974. In the 1980s

and 1990s, developments in computing power and advancements in microscope

technology (namely the scanning tunneling microscope and the atomic force microscope)

drove the evolution of nanotech.

Exhibit 5: Key milestones in the evolution of nanotechnology

Source: Foresight Institute, NNI, Goldman Sachs Global Investment Research

With nanotech approaching only its seventh decade of development, we believe it is still in

the process of completing its first phase of its evolution, one that has been centered on

additive materials, which alter and/or enhance the existing properties of the materials they

are added to. Over the past 15 years, nanotech has been about understanding and

discovering new materials in order to improve existing products. We expect the second

phase of nanotech’s development will focus on the exploitation of novel properties of

materials, particularly the “multi-property” benefits of materials.

Most importantly, we believe this next leg of nanotech development could see the

evolution of nano-factories and AMs that are able to self-assemble. Manufacturing on the

nano-scale will reduce waste and facilitate the construction of bespoke materials, thereby

advancing material science and propelling a further wave of corporate R&D and product

development.

The benefits of nanotechnology: The world’s building blocks

Nanotech has been used by nature itself to build the world as we know it through

molecular and atomic construction. The unique properties of materials at the nanoscale

make it possible to harness the physical properties that materials exhibit in their naturally

occurring states.

Year Event

1959 Feynman first suggests the concept that materials could be engineered with 'atomic precision'

1974 Taniguchi coins the term "nano-technology"

1977 Molecular nanotechnology conceived at MIT

1981 First technical paper on molecular engineering

1985 Discovery of the Buckyball

1986 First book on nanotechnology published

1988 First University course on nanotechnology offered at Stanford

1991 Japan's Ministry of International Tradee & Industry (MITI) announces bottom-up "atom factory

1996 First nanobiology conference

1997 Zyvex, first nanotechnology company founded

2000 President Clinton announces US National Nanotechnology Initiative

2003 US Congressional hearing into the societal implications of nanotechnology

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The physical properties of matter change significantly from their larger bulk scales through

to the nanoscale. Properties such as electrical conductivity, melting point, reactivity and

colour all change as a function of particle size.

As an example, gold when deconstructed down into nano particles displays significant

catalytic properties. Whilst inert in its natural solid form, at the nano level, more gold

atoms are available at the surface due to its crystalline nature. Thus more gold atoms are

available to catalyse reactions than are available in its bulk format. Nano-gold is being

contemplated in a range of potential applications from photo thermal cancer therapy to the

catalysis (speeding up the rate of chemical reactions to achieve an objective) of clean

drinking water.

One of the benefits of the nano is the surface area that can be exerted on a material, and in

the case of gold, the advantages of greater atomic interface with external influences deliver

significantly altered physical and chemical properties. By way of example, a standard

playing dice has a 16mm face width and a total surface area of 1536mm2. If that dice was

comprised of nanometer-sized cubes, the total surface area of the cube – in its nano

components, would be 9,600 square meters, which is almost equal to the surface area of

eight Olympic-sized swimming pools.

The improved surface area allows greater atomic interface with atoms, thereby improving

the catalytic nature of materials.

Nanomanufacturing: A bottom-up future

Nanomanufacturing has existed for decades, primarily in industries such as

semiconductors and chemicals.

The broad field of constructing materials on the nanoscale has been segmented into two

distinct approaches:

i) Top down: The construction of nanomaterial from larger bulk materials.

ii) Bottom up: The self-assembly of molecules/atoms through either the application of

external applied force or natural physical principals.

The difference of the two methods (ignoring the optics of the end-product) can be likened

to the whittling down of a block of wood into a bust of a human head (top down) versus

replicating the same bust from individual Lego bricks (bottom up).

Exhibit 6: Nano particles can be created by breaking down bulk material in to nano components (top down) or by

forcing atoms into a bespoke cluster (bottom up)


The here and now of nanotech is focused on the top-down approach and, more specifically,

additive nanotech, which is focused on altering and/or enhancing existing properties of

materials. However, the future of nanotech is likely to progress more toward the bottom-up

approach where nano-factories and self-assembly processes will allow nanomaterials to be

NanoparticlePowderBulk Material Molecular Cluster Atoms

Top Down Bottom Up

The physical properties of matter change significantly from their larger bulk scales through to the nanoscale. Properties such as electrical conductivity, melting point, reactivity and colour all change as a function of particle size.

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constructed from the sum of their parts (i.e., molecular construction) rather than by the

reduction of the whole.

Top down: Improvement by precision engineering

Top down is essentially an evolution of existing manufacturing processes, but taking it

from the micro level to the nano level through increasing levels of precision engineering.

The continued reduction in micro processing chip sizes over the decade (with chips down

to the nanometer size currently) is a reflection of the rate of change in top-down precision

engineering. In the top-down approach, the fact that the nano particles are constructed

from a larger bulk component results in more waste (in terms of both material and energy).

Also, the ability to specifically create a material with unique properties is the driver behind

the molecular construction of the bottom-up approach.

Whilst nothing is simply defined in nanotech, we believe the top-down approach to

nanoparticle construction can be broadly classified as: 1) lithography; and 2) precision

engineering.

Exhibit 7: Nanomaterials are mainly developed via the top-down approach, which reduces

a bulk material into nanoparticles


Precision engineering: The construction of smaller-sized material through cutting,

grinding, milling, machining and etching is currently used in a variety of industries and

specifically in the electronics and semiconductor industries. The current generation of

ultra-precision machining tools can define products at the sub 100nm range. Natural

materials such as diamonds or synthetics such as cubic boron nitride are utilised as

cutting elements.

Lithography: The creation of nanomaterials through the utilisation of light, ions or

electrons to create a surface that is then either etched or deposited onto a material to

produce the device/material required. Electron and ion based methods can construct

materials down to around 10nm in size but involve a relatively slow manufacturing

process and thus are not often used in commercial applications.

The current generation of top-down technology will continue to progress. However, the law

of small numbers means that the benefit of the technological advancement from top down

will become incrementally smaller. Thus the second wave of nanomanufacturing ‒ bottom

up ‒ which is still more in the conception stage than the production stage is expected to be

the next driver of the nano revolution.

Bottom up: The specific structuring of atoms and molecules

Whilst the reduction of materials and elements down into their nano format alters

properties and applications, it still generates waste and does not deliver a bespoke end-

material. The concept of bottom-up nanomanufacturing entails the creation of a specific

Top Down

Lithography Precision engineering

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structure using the atom or molecule as a building block for its construction. The material

is essentially created by the bespoke placement of atoms into a formation to create a

structure with defined and distinct properties. The bottom-up approach is still evolving

through the research phase with many industry experts believing that the approach is likely

to start to become a viable manufacturing process within the next 5-10 years.

Exhibit 8: The bottom-up approach is the potential future of nanotechnology


There are broadly three techniques for the bottom-up construction of nanomaterials;

Chemical synthesis (such as chemical vapor deposition – CVD): A process whereby

chemicals react to produce a nanomaterial that is deposited onto a thin film.

Positional assembly: An external force (energy) is exerted onto atoms and molecules

and they are forcibly shifted into a position to construct a desired material. Limited

waste would ensue, but the application of force/energy would remain required. The

construction of structures though positional assembly could make it possible to build

nano-bots and other nanoscale machines. However, although the creation of nano-

factories capable of churning out nanomaterials would appear to be possible; it is still

at this stage a scientific dream.

Self-assembly: Atoms arranging themselves in an ordered and engineered manner to

construct a pre-determined material. Given that the construction is at the atomic level,

there will be no waste and limited energy expenditure. Essentially, self-assembly has

the potential to be the ultimate “green” manufacturing process.

The bottom-up approach, specifically the creation of bespoke nano-scale materials,

machines and structures, is integral to the evolution of nano-manufacturing. The ability to

create custom, unique materials could help develop fields such as semiconducting,

nanomedicine (through drug delivery applications) and water filtration (via improved

catalysis).

Thus, although nanotech is now more focused on creating additive materials to enhance

existing applications, the next wave of nanomanufacturing could help solve some of the

key problems that an ever-industrializing world faces. Although nanotech may be

approaching its half century as a scientific field, it is only in its infancy as a manufacturing

process.

Bottom up

Chemical

synthesisSelf-assembly

Positional

assembly

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The nanotech microscope evolution

Microscope: Derived from the Ancient Greek words mikrós (small) and skopeîn (to look).

Exhibit 9: Electron microscopes’ ability to view nano-objects has driven R&D in the field of nanotechnology Resolving power of microscopes

Source: Goldman Sachs Goldman Investment Research

The development of microscopes has come a long way since they were first used to discover microorganisms back in

in the 1600s. While optical microscopes have been the mainstay of imaging during this period, their advancement has

been limited by their inability to magnify and resolve images smaller than c.200nm (constrained by the wavelength of

light) and their limited depth of field (two-dimensional imaging).

This all changed in the 1930s through the invention of scanning electron microscopes (SEMs). Using electrons instead

of light, they made it possible to resolve features down to a few nanometers. The electron microscope, first developed

by German engineers Ernst Rusky and Max Knoll, uses a focused beam of electrons to probe a sample in a vacuumed

environment, and the electronic signal is processed to form an image, achieving magnifications of up to 1,000,000

times. Early progress in material science was mostly limited to studies of small particles, and during this time

microscopes could determine the size and shape of materials but not reveal their internal structure.

In 1982, the scanning tunneling microscope (STM) was invented by Gerd Binnig & Heinrich Rohrer in IBM’s Zurich

laboratory (they were later awarded the 1986 Nobel Prize in Physics for this invention). This was the precursor of

nanotech research as the STM was able to: (i) display three-dimensional images of samples down to an atomic level;

and (ii) allow for the manipulation of nanoscale particles and atoms to test for their various characteristics and

functionalities. However, a major drawback of the STM was its lack of ability to interact with non-conductive materials.

In 1986, the same inventors of the STM invented the atomic force microscope (AFM); the most-used nanoscale

microscope, given its ability to scan non-conductive samples. Originally used to image topography of surfaces, it is

also able to measure other characteristics of materials (electric and magnetic properties, friction and chemical

properties).

Today, electron microscopes are an indispensable tool for analyzing and constructing new nanomaterials. Further,

microscopes have recently been integrated to perform in-situ nanomaterial engineering and fabrication using

techniques such as: (i) nanomanipulation; (ii) electron beam nanolithography (using AFMs); and (iii) focused ion beam

techniques. Examples of products that have improved via these techniques include lithium-ion batteries,

nanomaterials and semiconductors.

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Commercialising nanotechnology

The benefits of nanotech have long been recognised by governments and the private

sector. The National Nanotechnology Institute (NNI) is a US government agency focused

on nanotech R&D. The NNI was established in 2000 and since then has been a leader in the

field. Since its inception, the NNI has received almost US$20bn of government funding

with the 2017 budget set at US$1.4bn.

Exhibit 10: Total NNI funding

Source: CRS & NNI

Government funding is increasingly matched by spending from private equity and VC firms

as well as R&D spending from larger corporations. The OECD estimates that global R&D

spend on nanotech is in the order of US$26bn pa with the United States, Korea and Japan

all major contributors. Given that the data does not include regions such as China, the total

spend is likely to be significantly higher, in our view.

Exhibit 11: Japan, the US and Korea dominate nanotech

patents… % of nanotech patents by country (2015)

Exhibit 12: …with the number of patents a broad

reflection of R&D spend R&D spend in nanotech sector (2015)

Source: OECD, Goldman Sachs Global Investment Research.

Source: OECD, Goldman Sachs Global Investment Research

0

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According to OECD data, there are around 15,000 firms exposed to nanotech ‒ as

manufacturers or via overlaps their operations have with nanotech. Of those firms, almost

1,000 say they are dedicated solely to the field of nanotech. The range of R&D is massively

broad given the scope of what nanotech entails – for instance, graphene research classifies

as a subset of nanotech, and as such the spend may not represent direct investment in the

research, development and propagation of nanotech and nanomanufacturing. Our analysis

indicates that, to date, most of the commercial aspects of nanotech have been focused on

additive materials, which alter and/or enhance existing properties of materials. For

example, housing paints with nano-particles such as titanium oxide (TiO2), are considered

nanotech products, and this would also be the case for a tennis racket with a slight additive

of graphene (though whether the addition of the nano-material improves the product

quality is another matter).

Additives – the here and now of nanotechnology

Spurred on by the never-ending demand for product improvements, companies are

increasingly looking to nanotech as a way to gain a decisive edge. It remains difficult to

determine how much these products are actually improved by nanotech, and how much is

a marketing strategy. Using The Project on Emerging Nanotechnologies database of

Consumer Product Inventory, we can identify 1,944 distinct registered applications of

nanotech. The data may not be truly reflective of the amount of applications as some

companies may not promote the use of nanotech in their products and some may

overstate the nanotech component. However, we believe it does provide a reasonable

breakdown of nanotech applications from an additive perspective.

Some market research has suggested that nanotech could be a US$1trn market by 2030.

However, we caution that this reflects the dollar value of the end-products that include

nano-materials and is not a reflection of the value or revenue that actual nanoparticles

deliver.

Exhibit 13: The United States is a leader in nano product

development…

Exhibit 14: …with silver (a known-known) dominating as

the key nano element, and graphene with two

applications only thus far

Source: The Project on Emerging Nanotechnologies, Goldman Sachs Global Investment Research


0

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800

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Top 1

0 '

nano'

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Most of the commercial aspects of nanotech have been focused on additive materials, which alter and/or enhance existing properties of materials.

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Exhibit 15: …health and fitness (personal care) is the top

category for nano applications…

Exhibit 16: …with antimicrobial protection (sunscreen,

cosmetics, etc.) the lead nano function


Source: The Project on Emerging Nanotechnologies, Goldman Sachs Global Investment Research.

Other technological advancements utilising nanotech include:

Nanocomposites: The inclusion of nanoparticles into a larger sample material

(generally accounting for <5% of the mass of the main material), which enhances the

physical properties of the resulting naoncomposite. Can be found in fabrics, solar cells,

coatings, super capacitors, etc.

Nano-electrodes: They perform similar to normal electrodes but on a nano scale. The

high surface to volume area of the nanoparticles lead to larger electrode contact areas

and thus enhance mass transport. The faster transport of the electrons results in

enhanced electrical and ionic conductivity – improving charge times is one example.

Lithium-ion batteries, supercapacitors, fuel cells and solar cells have all seen improved

energy performance due to nano-electrodes.

Nano coatings: Used in a variety of applications where nanotech can provide a

coating or film that improves and alters the reactivity of the material it coats. This

includes coatings on cars to reduce the need to wax, films in paints to improve

washability, and utilisation in solar cells to enhance the manufacturing of photovoltaic

cells.

Nano-products are clearly evolving. The next generation of products (utilising the bottom-

up approach to nanomanufacturing) are becoming more defined for specific tasks, and will

likely start to be commercialised in coming years. In the case studies on pages 50-63, we

examine several applications where we believe nanomanufacturing will have a significant

impact on the current industry status quo ‒ including boosting potable water availability in

the emerging world and improving the delivery of cancer drugs.

0

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KEY APPLICATIONS

GRAPHENE

History: Still relatively young; first isolated in 2004

Benefits: Strength, conductivity, transparency, weight and unique 2D

structure

Commercialisation: Slowly beginning to ramp up, cost reduction is key

Potential applications: Mobile technology, water filtration, foldable display

technology, batteries and energy storage, composite materials, sensors, paints

and coatings, printing and packaging

Select company exposure: End-consumers such as Samsung, Apple, and

LG will be ultimate users of graphene in conductors and mobile technology

applications. Lockheed Martin is leader in water filtration development.

Producers of graphene such as Graphena, Dongxu Optoelectronic Technology

and Graphene Laboratories are all looking to commercialise graphene

manufacturing.

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Graphene: The carbon source for the next industrial revolution

From coal to graphene, carbon has been ever-present in the evolution of manufacturing.

Just as coal was a driving force behind the development and progression of the industrial

revolution, graphene has the potential to drive another phase of change. Graphene’s

strength (it is 300 times stronger than steel), conductivity (its electrical current density is

106 greater than copper’s), and transparency make it unique and well-suited for use in a

myriad of end-market opportunities and products.

Whilst graphene is now mainly used in small amounts as an additive to enhance the

properties of other materials, it has the potential to play a key role in the rapid

development and structural change of industries ‒ due to its use in carbon nanotubes,

flexible semiconductors, water filtration, and much more.

Graphene could revolutionize audio visual technology via its use in foldable displays and

devices and with non-traditional surfaces (such as windows) used as visual displays.

Given that graphene was only isolated in 2004, its potential as an enabler of new

technology remain embryotic, but with companies such as Samsung and LG continually

adding patents around graphene, the applications and end-markets for the material look

set to ramp up sharply.

The history of graphene and its benefits

The differentiator of graphene from other carbon allotropes, such as graphite, is its size.

Graphene is essentially a 2D (single layer) material and in its purest form it is only a single

carbon atom thick. Its nearest cousin, graphite (the current material de jour for its use as an

anode in lithium-ion batteries) has a layered planar structure. In layman’s terms, an

effective way to visualize the difference between graphite and graphene is to think of a

deck of cards. Graphite is two to three decks of cards stacked on top of one another.

Graphene is a single card. This unique structure makes graphene much stronger than

graphite.

Graphene was first conceptualized in the 1940s. However it was not until microscope

technology (mainly the development of transmission electron microscopes in the 1960s

and 1970s) allowed the first glimpses into its physical. The first attempts to isolate

graphene were conducted in the 1990s and early 2000s; they focused on isolating graphene

sheets (essentially graphite) with no reported success in delivering graphene in less than

50 layers thick before 2004.

Sir Andre Geim and Sir Kostya Novoselov isolated graphene in 2004, and received a Nobel

Prize in 2010 for “for groundbreaking experiments regarding the two-dimensional material

graphene”. The isolation of individual layers of graphene, and the exceptional properties it

delivers, started a “carbon-rush” into the research and development of the material.

Since then, graphene’s viral acceleration into the mainstream has resulted in more than

32,000 patent applications in the past five years and nearly 10,000 research papers

published on it annually.

Graphene is a single atomic layer of graphite arranged in a hexagonal lattice, and is the world’s first 2D (single layer) material.

Allotrope: one form type in which an element can occur.

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Exhibit 17: Recent years have seen an increase in the

number of patents filed relating to graphene…

Exhibit 18: …with China emerging as a leader in

graphene technology, followed by Korea.

Source: SciVal

Source: World Intellectual Property Organization

The buckyball – Generation X’s cautionary tale on graphene

The buckyball provides a cautionary tale for the hype around graphene. Buckyballs – or more formally

Buckminsterfullerene – is a form of fullerene, which is a molecule of carbon and thus a close cousin to graphene. The

buckyball is a spherical fullerene, with a broad resemblance to a soccer ball containing 60 carbon atoms.

Whilst spherical fullerene had been theorized about as early as the 1960s it was not until the mid-1980s that the

buckyball was discovered using laser evaporation of graphite.

In 1986, the early pioneers of Buckminsterfullerene (like those of graphene) were awarded a Nobel Prize. The buckyball’s

properties of large internal space inside the molecule, its bond structure and superconductivity made it a matter of

interest for scientists looking to develop applications including hydrogen storage and fuel cells, a trap for free radicals

that can reduce allergic reactions, an anti-oxidant to fight multiple sclerosis and a building block for the creation of

carbon nanotubes.

Sound familiar?

Despite the buckyball being the wonder of the AMs space in the 1980s and 1990s, not a single application using the

buckyball has been commercialised. Interestingly, graphene is now being proposed as a possible solution for many of

the applications that buckyballs were once thought to be useful for.

Whilst the lack of commercialisation of graphene’s carbon cousin is not in itself a death knell for the development of

graphene given their different atomic characteristics, it is certainly a cautionary tale on how hype does not always

translate into profit pools.

Exhibit 19: A buckyball structure

Exhibit 20: Buckyball patents peaked 5 years after 500

patents were lodged and have been on a decline since YoY patents changes in years after first 500 patents lodged


Source: WIPO and Goldman Sachs Global Investment Research

18%

27%

42%

74%78%

60%

37%

45%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

2000

4000

6000

8000

10000

12000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Published Patents (Graphene, by year, LHS) % yoy growth (RHS)

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US as % total China as % total Korea as % total

-20%

-10%

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1 2 3 4 5 6 7 8 9 10

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Pate

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Year since 500 Patents lodged

Buckyballs Graphene

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The benefits of graphene

The attractions of graphene are its properties of strength, conductivity and transparency.

Each benefit in isolation provides inherently better properties than existing materials in

commercial consumption:

Strength: 300x stronger than steel

Conductivity: Electrical current density 106 greater than copper

Transparency: Given its single atomic thickness, sheets of graphene are transparent.

The combination of all three properties makes graphene unique in the material science

field.

Exhibit 21: Graphene a miracle material found in a simple form Comparison of different materials


Almost 25% of all patents that have been filed globally for graphene relate to

semiconductor technology. The commercial impact and subsequent utilisation in semi-

conductors is highlighted by Samsung and Semiconductor Energy Laboratory Corporation

of Japan being the two largest filers of patents with almost 1,000 patents each (2.3% of

total patents filed).

On a country level, Japan and Korea are leading the charge to commercialise graphene,

but China is catching up quickly, accounting for almost 30% of all patent applications in

2015. Government funding and policies coupled with world-class academic institutes and

research is propelling China to the forefront of graphene research. China’s five-year plan

for 2006-2010 tripled nanotech funding, highlighting the importance of cutting-edge

technology and materials to China’s vast manufacturing base.

Patent numbers have been rising since 2006, and momentum is growing, but graphene has

still yet to crack the commercial conundrum. Graphene’s strength of having a vast array of

applicability may also be its Achilles’ heel, with researchers taking a shotgun approach to

idea generation and thereby slowing down the economic commercialisation process. The

range of material applications for graphene includes semiconductors, water filtration,

edible packaging, carbon nanotubes and energy storage.

The fact that semiconductors are the single-biggest source of patents (and thus by default

research) for graphene is a reflection of graphene’s properties and the scarcity of existing

conductor materials. Currently indium tin oxide (ITO) is the main material used in

semiconductors. ITO’s properties of electrical conductivity, heat reflection and most

importantly transparency make it a perfect conducting film for the touchscreen display

revolution. However, ITO has a rather finite reserve life with our analysis suggesting that

Graphene Metal only Metal + plastic Alumina + plastic Graphite + plastic Graphite sheet

Conductivity Good Excellent Good Poor Poor Good

Additive amount Small N/A Small Large Large N/A

Strength Good Excellent Good Poor Poor Good

Weight Light Heavy Heavy Heavy Light Light

Insulation property Good Poor Poor Good Poor Poor

Cost Can be low High High Low High High

Workability Good Poor Poor Poor Poor Poor

Almost 25% of all patents that have been filed globally for graphene relate to semiconductor technology.

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there is only around 8-10 years of global indium reserves left. Thus graphene, with its

similar properties to ITO and its almost endless supply, could be the perfect replacement

material – if its cost of “construction” can be reduced to become economically viable.

Exhibit 22: Graphene patents by country of application Exhibit 23: Graphene patents by end-product application



Whilst semiconductors is likely to be the main focus of graphene, potential end-

applications for graphene are almost endless, but we acknowledge that the key to

graphene’s success lies with its ability to dislodge existing materials and disrupt the status

quo. On this theme, a few factors are key to crystallising widespread commercial uptake:

Reducing costs of production.

Developing a reputation of high product quality to drive substitution.

Educating the masses to view graphene as value-enhancing rather than as a cost.

Whilst the here and now of graphene is still at an embryonic stage, its potential remains

immense, in our view. Just like plastics in the 1920s and 1930s, graphene is waiting for a

“killer app” to kick off exponential demand growth. WWII provided the catalysts to drive

plastic demand (given limited other raw materials). Global conflict is unlikely to be the

game changer for graphene, but the scarcity of critical global resources (ITO, clean water)

coupled with the desire of a wealthier middle class to stay healthy (nano-medicine) will be

two important drivers.

USA

44%

Other

21%

China

19%

EU

6%

Korea

6%

Japan

2%

Canada

2%UK

0%

Semi-

conductor

25%Compounds

18%

Batteries

13%

Nano particle

technology

8%

Catalysis

6% Other

30%

The key to graphene’s success lies with its ability to dislodge existing materials and disrupt the status quo.

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Where’s my Indium?

Indium is a silvery-white metal that is associated with zinc, copper and tin. Indium is typically a significantly minor

component of the ore assemblages with approximate concentration levels of around 50ppm. Indium is principally a

byproduct of the electrolytic refining of zinc ores.

Over 70% of indium is consumed as indium-tin oxide (ITO) for liquid crystal displays. ITO’s properties of electrical

conductivity, heat reflection and, most importantly, transparency make it a perfect conducting film for the touchscreen

display revolution.

Although reserves of indium are not classified, we can approximate off zinc reserves that there is around 10kt of indium

reserves globally with about 20% of that within China. Indium supply is a combination of primary supply from mines,

along with recycled indium at a rate of about 40/60 primary/recycled split.

On current demand levels, we estimate there is around 10-12 years of known indium reserves left globally.

Assuming an 8% CAGR for demand, we forecast that by 2019 indium supply will not be enough to meet demand. More

importantly, indium reserves will be down to five years, impacting surety of supply for producers. Consequently, the

need to replace ITO with other conducting material is both a financial and a security of supply issue.

Exhibit 24: Current indium reserves are around 10kt,

which represents just over 10 years of supply Indium reserves are based on global zinc reserves and

assume a 50ppm content level of indium among the zinc ore

Exhibit 25: By the end of the decade, demand for indium

is set to surpass supply Indium mine supply/demand balance

Note: Demand assumes a 8% CAGR and mine supply growth in line with zinc production levels

Source: USGS, Goldman Sachs Global Investment Research.

Source: Company data, USGS, Goldman Sachs Global Investment Research.

Indium Reserves (t) % of world supply

USA 550 5%

Australia 3150 31%

Bolivia 250 2%

Canada 300 3%

China 1900 19%

India 500 5%

Ireland 50 0%

Kazakhstan 200 2%

Mexico 750 7%

Peru 1250 12%

Other 1300 13%

Total 10200 100%

0

500

1,000

1,500

2,000

2,500

3,000

tonn

es

Mine supply Recycled supply Demand

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Graphene manufacturing processes

The manufacturing graphene on a commercial scale is not as straightforward. There are

three main ways to produce graphene in commercial quantities:

1. Chemical vapour deposition (CVD) – the most common and expensive method, it

produces high-quality sheets of graphene. It involves extracting carbon atoms from a

carbon-rich source by reducing and depositing gaseous reactants onto a substrate to

isolate carbon atoms and graphene.

2. Graphene powder and flakes – this involves exfoliating plastics and is used to produce

high-quality thermal plastics.

3. Graphene oxide – graphite is treated with strong oxidisers like sulfuric acid in a redox

reaction. The quality of graphene produced via this process is not very high.

Exhibit 26: Exfoliation is a relatively cheaper method to

produce graphene Comparison of different graphene production methods

Exhibit 27: Application areas have huge potential

Source: Graphene Platform Corporation, Goldman Sachs Global Investment Research.

Source: Graphene Platform Corporation, Goldman Sachs Global Investment Research.

Cost reduction the key for commercial success

The cost-consumption arbitrage for graphene still has a long way to go. Whilst the past

decade has seen the production of graphene move from a cottage industry to a more

commercial focus, it is still not a mass-production process.

Cost progression has been rapid. We estimate unit costs of graphene powder production

were around US$100/g in 2013, falling to around US$10/g presently. However, costs need

to fall further to <US$1/g to be competitive and provide a viable substitution alternative for

other materials (such as the addition carbon black in plastics). Given a 90% reduction in

costs in the past three years, we believe the commercial construction of graphene at sub

US$1/g is a given.

The ability of cost-effective graphene to impact an industry is significant – take carbon

black for example. Carbon black is most widely used as reinforcement in tires, and it

accounts for c.25% of tire weight, (about 9-10kg for a 16-17-inch tire). According to Japan’s

Ministry of Economy, Trade and Industry (METI), the price of carbon black was c.US$1.5/kg

in 2015. It is thought that graphene will be able to replace carbon black in plastics while

amounting for only 1%-2% of the product content– reducing per-content usage by a

significant amount, while enhancing durability and grip, and reducing rolling resistance.

SyntheticHigh Cost

High Quality

Value Added Applications

CVD

Epitaxial Growth on SiC

Micromechanical Exfloliation

ExfoliationLow Cost

Low Purity

Mass Production

Chemical Reduction of Graphene Oxide

Ultrasound

Liquid Phase Exfoliation

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This would mean that graphene would become competitive vs. carbon black if it is sold at

around US$20-30/kg.

Exhibit 28: Graphene price of US$20-30/kg would make it competitive as a tire additive Pricing simulation for tire reinforcement (carbon black vs. graphene)

Source: METI, Goldman Sachs Global Investment Research.

The history of carbon fiber resonates well with the analysis above. The early stage of

carbon fiber demand was solely driven by military use, mainly in the United States and the

United Kingdom. When the Japanese manufacturers became successful in the commercial

production of carbon fiber in the early 1970s, companies searched for consumer-facing

applications, but for a long time demand was limited to niche sports categories such as

golf shafts, fishing rods, and tennis rackets. It took nearly 30 years until the industry saw a

meaningful pick-up in global carbon fiber demand, which was driven by industrial

applications. By the early 2000s, prices for general-industrial grade carbon fiber had come

down to US$3,000 per kilogram, from US$9,000 back in the late 1980s.

However, while the development of carbon fiber was relatively slow, we believe there are

several reasons why graphene has the potential to evolve in a more super-charged

manner:

1. Computing and general scientific technology is now much more advanced than in

the 1980s and 1990s and should enable the scientific development of graphene to

proceed much faster than was the case with carbon fiber.

2. The desire of consumers for smaller, faster, and lighter products provides the pull

factor for producers to utilise graphene in their R&D programs and product

development.

3. The pick-up in carbon fiber demand in the early 2000s coincided with higher oil

prices and the global push toward environmental protection. Graphene properties

are exceptionally environmentally friendly.

Carbon black Graphene

2.5 0.2

Total cost as tire reinforcement

3.8 3.8 USD

Tire weight 10 kg

kg

Unit price 1.5 25.0 USD/kg

Total weight needed

% of tire weight 25.0% 1.5%

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Exhibit 29: Global demand for carbon fiber took off as a result of lower prices Historical development for global carbon fiber demand and prices for general industrial-grade carbon fiber

Source: Toray Industries, Nikkei Shimbun, Goldman Sachs Global Investment Research

Potential applications for graphene

Graphene’s superior strength-to-weight ratio, electric and thermal conductivity, durability,

transparency, elasticity and impermeability mean that potential applications could be

massive and disruptive to some of the incumbent materials and industries. Let us take a

look at some areas where graphene could be used.

As mentioned before, the current global market size for graphene is estimated to be under

US$50mn, with limited commercial applications such as tennis rackets, battery straps and

oilfield chemicals. Below are some examples of potential areas of graphene applications

that we believe hold significant potential.

Foldable display (wearables): Bendable smartphones are in the R&D programs of many of

the world’s phone manufacturers. Graphene can be used as a transparent electrode placed

between titanium oxide (TiO2) and conducting polymer layers in OLED displays. On June 7,

2016, Bloomberg reported that Samsung is close to selling a phones with 5-inch bendable

screens, possibly in 2017. China’s tech-startup, Moxi Group, surprised the world when it

showcased a flexible smartphone at a trade show in China earlier this year.

Batteries and energy storage: Although lithium-ion batteries are in the spotlight with

Tesla’s Gigafactory and the potential rise in the global electric vehicle (EV) market,

graphene batteries reportedly charge much more quickly and hold power for longer.

Graphenano, a Spain-based company, has tied up with China’s Chint Group, a power

transmission and distribution company, to develop graphene polymer batteries that would

significantly increase cruising distance for EVs. Although much skepticism remains about

graphene’s superiority over incumbent lithium-ion batteries, implications for the EV

industry could be massive (especially for companies like Tesla) if graphene batteries can

make a commercial debut.

● Fishing rod● Artificial satellite● Secondary structural material for Boeing 757/767

● Tennis racket● Golf shaft● Primary structural material for Airbus 320

● General industrial-use applications (energy, transportation, etc)● Primary structural material for Boeing 777

● Primary structural material for Airbus 380 & Boeing 787● Windmill blade● Automotive-related use

1971-1983Introductory period

1984-1993Growing period

1994-2003Expansionary period

2004 onwardsDemand acceleration period

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0

10

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1970

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2006

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2010

2011

2012

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General industrial

Aerospace

Sporting goods

(000 tonne) (JPY/kg)

Price (rhs)

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Composite materials: Adding graphene to a composite material is said to be one of the

easiest ways to enjoy the superior properties of graphene as it enhances the properties of

the existing material. For instance, Haydale Graphene Industries a UK-based public

company that specializes in developing and functionalizing graphene, recently announced

the launch of graphene-enhanced carbon fiber prepreg (pre-impregnated product), which is

capable of faster composite part production (reducing process cycle times), enduring

higher temperatures, and high-accuracy tooling. The addition of graphene is also said to

double the strength of epoxy resin, which is typically used in carbo fiber composites. This

could be a game changer and could facilitate adoption of carbon fiber composites into

wider applications.

Sensors: Graphene could be used in high-performance sensors as its large surface-to-

volume ratio and bulk-less properties make it very well-suited for sensor functions.

Graphene has the potential to replace silicon as it could exhibit superior electron properties

while enabling sensors to be smaller and lighter. Applications could be widespread,

including biosensors, gas sensors, PH sensors, and more. In July 2015, Germany-based

Bosch successfully created a graphene-based magnetic sensor that is 100 times more

sensitive (i.e., required less power and footprint requirements) than the traditional silicon-

based sensor, although the company thinks it might take another 5-10 years for graphene-

base sensors to become commercially viable.

Paints and coatings, printing and packaging: Conductive printing and packaging is another

potentially promising area of graphene use. A UK-based technology company, Novalia,

together with researchers at University of Cambridge, recently developed a graphene-

based conductive ink that could be used on a large-scale commercial printing press at high

speed – a development that could potentially replace silver. A successful commercialization

of graphene ink could mean cheaper printable electronics, but would also open up

potential applications for smart packaging and disposable sensors.

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OLEDs: Bending the future

KEY APPLICATIONS

OLEDs

History: Modern OLEDs were developed by Eastman Kodak in 1987

Benefits: Better contrast ratios, colour schemes and saturation, flexible and

bendable properties

Commercialisation: Present-day applications already attractive, mobile

(smartphones and tablets) are already in the early stages of adoption

Potential applications: Smartphones, tablets, TVs, revolutionizing what is

classified as audio-visual equipment (turning a window into a TV display)

Select company exposure: Samsung, Apple, LG, Universal Display, Applied

Materials, ULVAC

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OLEDs: Bending the future

If the term organic light-emitting diodes (OLEDs) seems more familiar than the other AMs

we discuss in this report, that is likely due to the mass branding and marketing of the term

in products such as mobile devices and TVs. OLEDs have the potential to leverage and

collaborate with both graphene and nanotech to fundamentally shift the world’s mobile

technology landscape.

The flexible nature of OLEDs gives them the ability to challenge what society perceives as

audio-visual equipment. TVs remain a separate and distinct piece of furniture in our

households. OLEDs have the ability to make a window or mirror or fish tank into something

that can project a visual message.

The ability to utilise buildings, windows, and shop fronts as new mediums for commercial

messages could change how we advertise and interact in our daily shopping experiences.

Much as the mobile phone continues to challenge and alter our audio communication

trends, OLEDs have the potential to drastically alter our visual communication

consumption.

Exhibit 30: Commercial crystallisation lifecycle

Exhibit 31: AMs collaborate further to facilitate the ever

demanding global consumer



A brief history of OLEDs and why they matter

OLEDs utilise the scientific property of electroluminescence, where a material emits light

when an electric current is sent through it. OLEDs use a flat light-emitting technology,

made by placing a series of organic thin films between two conductors.

The basic structure of an OLED includes a cathode (which injects electrons), an emissive

layer, and an anode (which removes electrons). Modern OLED devices use multiple layers

in order to boost efficiency, but the basic functionality remains the same.

Paradigm Shift

Mind Share

Economies of Scale

Substitution

Mass Adoption

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Exhibit 32: Organic polymers usually make up the

emissive and conducive layers in OLEDs Simplified OLED components

Exhibit 33: Diagram of the structure of an OLED



While light emitting diodes (LEDs) have been around for over 50 years, OLEDs are a more

recent development in the AM space with the most significant advances in OLED

technology being made in the late 1980s.

Following those advances, the pace and progress of OLED development increased

markedly over the next decade. However, it was not until the late 1990s that the first

commercial OLED-based products began to reach the market, led by the Pioneer

Corporation’s passive matrix OLED (PMOLE) display for car audio in 1997. Fast forward

another decade and in 2007 Samsung Mobile Display released the first commercial active

matrix OLED (AMOLED) display. AMOLED is now the technology currently used in virtually

all OLED displays found in portable electronics and larger area flat-panel displays.

OLEDs have a number of properties that are superior to those of more established

technologies like LCDs and LEDs. LEDs are solid-state devices that emit light via the

movement of electrons through a semiconductor but are too big to be appropriate for use

as pixels in TVs. As such, they are actually used as backlights for LCD TVs. A key

differentiator for OLEDs is that their structure enables their organic compounds to light up

when electricity is transmitted through them. As a result, OLEDs are small and flexible

enough to serve as pixels in OLED TVs.

When used in mobile devices, OLED screens are distinctly better than traditional LCD

displays in terms of contrast ratios, colour schemes and colour saturation ‒ not to mention

their flexible and bendable properties.

Exhibit 34: Key advantages and disadvantages of OLEDs vs. LCDs

Source: DisplayMate, IHS, Goldman Sachs Global Investment Research.

Substrate

Anode

Conducive Layer

Emissive Layer

Cathode

Advantages of OLED versus LCD Disadvantages of OLED versus LCDThinner size as backlight is not required Higher per-unit production costsLighter Lower production yieldSmaller bezel Lower life spanWider viewing angles Unwanted burn-in of imagesMore vibrant display, deeper black, and vivid colorsBetter color reproductionFaster response timeHigher peak brightness

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The hype: Present-day applications already attractive

Samsung, the global leader in smartphones (23% market share) uses OLEDs in their

flagship products, which has curved edges, and the ability to be tailored by the consumer

in terms of functionality.

Exhibit 35: The potential of flexible phones is vast... Flexible OLED phone indicative image

Exhibit 36: ...with flexible OLED technology being used in

mainstream phone models to create curved edges



We believe this is only the beginning, however, with flexible mobile technology having the

potential to drive change and consolidation in the mobile industry, i.e. in smartphones,

tablets, smartwatches. Samsung is at the forefront of this, having filed a number of patents

for an assortment of digital devices that include scrollable, tab style, and bendable features.

With the leading mobile innovators filing patents for a variety of modern applications (e.g.

Samsung for both scrollable and foldable smartphones), the profit pools and growth in

TAMs are potentially mind-boggling.

Having discussed the potential for OLEDs to transform the mobile landscape, it is

important to note that present-day applications are still highly commercially attractive; we

estimate a total addressable market of c.US$25bn by 2018.

Exhibit 37: Current mobile technology applications are the main demand drivers for OLED

technology OLED applications


Mobile

• Samsung clear market leader

• Cost of producing OLEDs on par with LCDs

TV

• TV market currently in an ex-growth phase

• Quantum dots could make OLEDs redundant

Lighting

• Energy efficient and environmentally friendly

• Potential to power cities globally

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The promise: Mobile technology, all roads lead to OLEDs

Mobile devices (smartphones and tablets) are already in the early stages of OLED adoption,

with the better quality and increased longevity of OLEDs being integral to the disruption of

traditional LCD screens. In our view, there will be a transcendent structural shift to OLEDs

from LCDs within the next three to five years. We note that Samsung Display is currently

the only company mass-producing OLED-based screens; however, there are a growing

number of Chinese manufacturers trying to enter the space (Huawei, Lenovo, Xuamei).

Exhibit 38: Samsung dominates the global mobile AM OLED market Small/medium AM OLED global market share

Source: IHS

Smartphones are already integral to modern society (c.90% penetration), and are set to

become even more important to our personal Internet of Things as they become a one-stop

shop for wallets, payments, wearable hubs, and remotes connecting all aspects of our lives.

99% 97% 95%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015

Samsung Display LG Display EverDisplay Sony eMagin AUO

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Exhibit 39: We expect emerging markets to drive

smartphone growth Smartphone penetration as % of total handset shipments by

region

Exhibit 40: Smartphone penetration approaching 90% Smartphone shipments (mn) and as % of total mobile

shipments

Source: Gartner, Goldman Sachs Global Investment Research.

Source: Gartner, Goldman Sachs Global Investment Research.

Samsung and Apple (combined 39% market share) have been the dominant smartphone

vendors over the last five years. However, both have lost share from their peaks (Samsung

at 30%/31% in 2012/13 and Apple at 19%/20% in 2011/12) primarily because of the mix shift

from mature to emerging markets, where new low-priced Chinese vendors have gained

traction. Indeed, the next three biggest smartphone manufacturers are all Chinese vendors:

Huawei (over 7%), Lenovo (5%, including acquisition of Motorola) and Xiaomi (5%).

Exhibit 41: Samsung is the global smartphone leader... Smartphone volume share (%), Global, 2015

Exhibit 42: …but Apple has a much bigger lead in the USSmartphone volume share (%), US, TTM (4Q14 to 3Q15)

Source: Gartner

Source: Gartner

A clear sign of the disruptive nature of OLED screens can be seen by the recently

negotiated US$2.6bn agreement whereby Samsung will supply Apple with 100mn 5.5-inch

OLED display units from 2017. We expect this agreement to expand to all sizes of iPhones

Samsung, 23%

Apple, 16%

Huawei, 7%

Lenovo+Motorola,

5%Xiaomi,

5%

LGElectronics

, 3%

Others, 41%

Apple, 40%

Samsung, 22%

LG Electronics

, 13%

ZTE, 7%

Lenovo+Motorola,

4%

Others, 14%

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in 2018, and we also expect other players like Huawei to follow suit in switching from LCDs

to OLEDs.

Exhibit 43: Summary of global technology sector implications from OLED adoption in iPhone


The future of television: OLEDs or quantum dots?

In our primary research thus far, we have found that the application of OLEDs to the global

television market is a unique exercise.

The incumbent liquid crystal display (LCD) TVs are now structurally challenged given the

ability of manufacturers to produce higher-quality product using OLEDs at equivalent or

lower production costs.

We caution that the TV industry has been in an ex-growth phase since 2013-14. As such,

the impact of OLED adoption will not be as commercially viable as that of mobile ‒ in the

short term at least.

That being said, Samsung and LG have both indicated their desire to transition into the

OLED TV market from the current status quo of LCDs. OLED-TVs have a number of

advantages over LCD technology, with key points of difference being a marked

improvement in image quality (with no backlight required) and increased energy efficiency.

Another new technology Samsung has been pursuing over the last couple of years is

quantum dot (QD) TVs. They have developed a cadmium-free QD TV and are 1.5 to 2 years

ahead of competitors. A point of debate, much like an earlier consumer decision of whether

to go plasma or LCD, is OLED vs QD. Both technologies have redeeming qualities as well

as slight negatives compared to each other, and we believe the consumer’s decision is

based on personal preference and subjective viewpoints.

We see both OLED and QD as branching technologies, effectively using different processes

and methods but in the end achieving a vastly similar outcome.

Sub‐sector/product Potential impact Related Companies Note Last Close (23 Sep 2016)

OLED Makers Positive Samsung Electronics (Neutral) Key beneficiary of iPhone's OLED adoption as we expect SEC to be the main supplier ¥1571000

iPhone Slightly Positive Apple (Buy) Innovation with OLED could help drive iPhone demand US$112.71

LCD makers Negative Japan Display (Neutral) LCD to lose share in iPhone display as OLED iPhone share rises US$163

OLED Material Makers Positive Universal Display (Buy) Secular winner in the shift to next generation displays US$58.82

Glass MakersNear term Neutral; long term

riskCorning (CL‐Buy) For Corning, higher share in OLED devices more than offsets potential loss of glass content per device US$23.14

Equipment Makers PositiveApplied Materials (CL‐Buy), Ulvac (CL‐

Buy)Increased OLED capex generates incremental business opportunities for OLED equipment US$29.66, ¥2863

Touch Makers Positive TPK (Neutral) Transition from in‐cell to out‐cell will expand addressable market for touch suppliers TW$52.2

Casing Makers Neutral Catcher (Buy), Casetek (Buy) Metals casing will still be used in a curved screen, but may see design limitations in foldable screen TW$267, TW$118

Polarizer/ITO MakersNeutral (polarizer: Slightly

negative/ITO: positive)Nitto Denko (Neutral)

OLED requires one polarizer compared to two for LCD, but higher value per film partially offsets the

downside. ITO film needed for out‐cell¥6668

BLU Makers Negative Minebea (Neutral) Backlights are not required in OLED 954

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Exhibit 44: Both have positives and negatives, but OLEDs have more upside if cost of

production can be reduced OLEDs versus QDs


We expect the TAM of OLED TVs to be c.US$2.2bn by 2018 with strong consumer adoption

to be offset by structural headwinds in the broader TV market.

The future of visual entertainment

The flexible nature of OLEDs, coupled with their transparency, have the potential to

radically change audio-visual entertainment. While the TV industry is in an ex-growth

phase, OLEDs could totally change our conception of what constitutes a TV. The ability to

place images on what amounts to flexible transparent thin film should make it possible for

any flat surface in the home (windows, mirrors, fish tanks, etc.) to become TVs.

As a result, windows and display cabinets in department stores could be turned into multi-

media applications. Windows on buildings could be billboards.

OLEDs have the potential to alter how society thinks of what is needed to produce and how

we consume visual entertainment.

Category OLED Quantum Dots

Colour gamut Better Worse

Colour accuracy Worse Better

Contrast Better Worse

Viewing angles Better Worse

Costs Worse Better

Lifespan Worse Better

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3D TVs: A cautionary tale

In early 2009, prototypes of 3D TVs were unveiled in Las Vegas and were soon released to the mass market with

Samsung and LG leading the charge. Interest and hype peaked following the release of James Cameron’s Avatar, where

moviegoers were captivated by the use of vivid colours and cutting-edge movie technology to create a 3D spectacle.

Unfortunately, in the case of 3D TVS, the hype train never really left the station as issues with a lack of content, the

physical hassle of wearing 3D glasses, and substitution toward high resolution (e.g., 4K, OLED) and smart TV

functionality taking the air out of the 3D movement.

This change in fundamentals is evidenced by the actions of commercial players. In 2016, Samsung for the first time cut

3D functionality from its TVs, Philips have limited their range to flat TVs only, and LG cut 3D TV production by half from

2015. Content providers are in the same boat, with Sky cancelling its 3D channel and BBC having ceased producing 3D

material in 2013.

So where to now? 3D still has a place, but more as a subset of the virtual reality/augmented reality revolution, which

encompasses the technology within a broader and far more dynamic framework. The consumer has made its choice,

and 3D TVs have not presented a compelling case for broad-based adoption.

Exhibit 45: The hype train can run out of puff very quickly…


Lessons Learnt

* Breadth of content is key

* Convenience is necessary in a time poor world

* There needs to be a compelling reason to switch from the status quo

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Cheating Moore’s Law

KEY APPLICATIONS

CHEATING MOORE’S LAW

History: Rapid innovation in the last 50 years (reflected by Moore’s Law) but

reaching the limits of current materials

Benefits: New materials (strained silicon, high-k metal gate, Cu interconnect,

III-V materials, graphene) and new construction techniques (FinFET, 3D NAND,

GAA/nanowires) can help cheat the end of Moore’s Law and improve

processing power

Commercialisation: Economic transition from research/development phases

is crucial to get fruitful end market outcomes

Select company exposure: Intel, TSMC, Samsung, Applied Materials, Lam

Research

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Cheating Moore’s Law

AMs, lithography, and innovative device structures have all played important roles in the

history of the semiconductor market, enabling manufacturers to push the limits of Moore’s

Law and pack more features on successive generations of smaller chips. We have moved

from having hundreds of features per chip to having billions of features today. As a result

of the relentless pursuit of Moore’s Law, we are able to do things like stream high-

definition video on our iPhones, a task that would have required a multi-million dollar

room-sized supercomputer 30 years ago.

Interestingly, this rapid advancement now leaves us in a situation where we are

approaching the physical limits of shrinking semiconductor chips. While much of the

historical focus from chip makers has been on the size of the semiconductor, the

limitations of technology are forcing the shift in attention to other areas to improve

performance, namely new materials and new construction techniques. Lithography has

been the primary enabler of smaller, more powerful semiconductor chips; however, we

believe AMs and new device structures will play a more important role in the coming

decades.

Although hard to predict with 100% accuracy, we have identified graphene, nanowires, and

III-V materials as potential innovations that could propel Moore’s Law into the late 2020s.

Further out, the future becomes even harder to predict, though we believe the number of

companies producing leading-edge chips and new technologies could itself shrink as

greater scale is required to research and develop more AMs.

Exhibit 46: Increasing computing processing power has

been a major driver of the advancement of AMs

Exhibit 47: While US$/mm2 has increased, scaling has

enabled chip manufacturers to pack more transistors

onto each chip, reducing the cost per transistor

Source: Atomic Scale Design Network

Source: Copyright Intel, used with permission.

1000

10000

100000

1000000

10000000

100000000

1E+09

1E+10

1E+11

1E+12

1E+13

1E+14

1E+15

1E+16

1E+17

1E+18

IBM 602(1946)

Intel 4004(1971)

Motorola68000 (1979)

Intel PentiumIII (1999)

IBMRoadrunner

(2009)

IBM Sequoia(2013)

Hash RateBitcoin (2016)

Floating Operations per second

Moore's Law is an observation that the number of transistors per square inch on an integrated circuit doubles every year.

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Semiconductors 101

What is a semiconductor and what does it do?

Semiconductors are materials that can act as both conductors and insulators. Silicon is the most widely used

semiconductor today and is used to make wafers that are then processed into chips.

Chips vs. microprocessors

Semiconductor chips are manufactured on wafers and a single wafer can contain hundreds to thousands of individual

chips. Microprocessors are one type of chip used in everything from PCs to smartphones to data center servers. Intel is

the world’s largest microprocessor manufacturer with a 99% share of the data center processor market and an 85%

share of the notebook and desktop processor markets.

What is a transistor?

The circuitry of semiconductor chips is made up of many transistors that are all packed in an area the size of a postage

stamp. Transistors are the building blocks of integrated circuits and serve as switches that control the flow of electrons.

Transistors can exist in “off (0s)” and “on (1s)” states depending on whether or not a current has been applied. The

ability to generate signals by turning the flow of electrons on and off is what allows computers to process information.

Exhibit 48: Microprocessors are made up of various special blocks dedicated to different functions Intel’s Skylake processor, released in Sep 2015


What else does a PM who hasn't looked at this space need to know?

Semiconductors represent a US$300bn+ market and serve as the backbone of today’s information society. While

computing is the largest end-market for semiconductors, they are also crucial components in communications,

consumer, automotive, and industrial applications. As the semiconductor industry has matured, growth has slowed to

5% pa today. However, we still expect select sub-segments to benefit from favourable secular trends, including:

Automotive applications: We expect the continued electrification of automobiles as well as long-term trends such as

advanced driver assist systems and autonomous vehicle to drive semiconductor content growth. We highlight NXP

Semiconductors NV (NXPI) and NVIDIA Corporation (NVDA) as key beneficiaries.

Graphics processing units (GPUs): We believe virtual reality will drive a strong refresh cycle for gaming GPUs, and

we view GPUs as uniquely positioned to serve the growing market for machine learning and artificial intelligence

applications with NVDA as a key beneficiary.

Radio frequency (RF) chips are used to filter out unwanted radio signals and enable faster data speeds/greater

bandwidth. More RF chips are needed as the number of RF signals increases. We expect 5G to lead to an overall

increase in radio frequency usage and, in turn, RF complexity. We view this as a long-term driver of content growth

for the RF industry. Key market participants include Skyworks Solutions Inc (SWKS), Broadcom Limited (AVGO),

and Qorvo (QRVO).

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Getting smaller & smaller… a history of process improvement

Moore’s Law started as a simple observation made in 1965 by Gordon Moore (co-founder

of Intel), that the number of components on an integrated circuit had roughly doubled each

year in 1959-1965. While the doubling period was later revised to every two years, over the

last 50 years Moore’s Law has come to represent the rapid pace of technology innovation

occurring in the semiconductor space.

To provide context, in the first generation of microprocessors there was a gap between

each transistor of around 10,000nm in width. Current microprocessors exhibit a gap closer

to 14nm, yet an iPhone now has more computing power than a supercomputer from the

1960s. The difference in 14 to 10,000nm is the difference between the length of an i-Phone

and the 100m sprint at the Olympics.

Exhibit 49: The evolution in processing capacity

Source: Intel, Press Reports, Bob Colwell,, Linley Group, IB Consulting, The Economist, Goldman Sachs Global Investment Research.

Improved lithography processes have resulted in reductions in transistor size, and size is

everything for a transistor. The smaller the transistor, the less power is required to turn it

on and off. Smaller size also allows a quicker transition between on and off. Smaller

transistors also enable the production of smaller chips, which allow semiconductor

manufacturers to fit more chips on each wafer, ultimately driving down cost/transistor.

Thus the past decade has seen chip manufacturers focus on reducing size.

Lithography has been the primary enabler of transistor scaling in the semiconductor

industry; though in recent years this dynamic has begun to face headwinds.

Lithography – driving the reduction in size

Simply put, lithography is the process of using light to transfer circuit patterns to a wafer.

This process is repeated many times over for numerous layers and exposures using

different photomasks (think of them as the blueprints) to create the final chip circuit.

More commonly today, the technique of immersion lithography is used. This involves

beaming light through ultra-purified water in order to increase resolution and achieve

smaller feature sizes.

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While immersion lithography has enabled manufacturers to scale feature sizes down to

14nm, new techniques such as multi-patterning have been developed to produce smaller

feature sizes. Multi-patterning consists of splitting a single exposure into multiple

exposures in situations where feature sizes are too small to use just one exposure. The

result is smaller feature sizes, but also higher manufacturing costs.

Exhibit 50: As linewidths become smaller, multi-patterning techniques are used

Source: Goldman Sachs Global Investment Research

However, as we discussed in the nano-technology section, the ability to construct materials

from a top-down approach (taking something big and making it smaller – which is

essentially lithography) is reaching its practical and technical limitations. The evolution

now is not making something big small; it is making something small in a bespoke manner

(self-assembly). Thus, unless self-assembly can be proved to be a viable manufacturing

technique, and it is not yet there, the continual shrinking in the size of transistors is

approaching its practical limitations.

Material issues

Another factor exacerbating the size constraints of semiconductors is the materials from

which they are made. As the term semiconductor implies, they are both conductors and

insulators of electrical current. Silicon has been the dominant material used in

semiconductor devices. Its low material cost, conducting properties and ability to operate

under relatively high temperatures has made it the material of choice.

The conductivity and insulating properties of silicon enables transistors to turn electrical

current on and off. However, as transistors become smaller, their ability to control electrical

current is weakened (this is known as leakage). The leakage of current produces heat,

which wastes electricity/power and hurts performance.

Whilst the slowing of the rate of transistor scaling is driving an increased chorus calling the

end of Moore’s Law, new materials and new construction techniques could enable it to

continue into its seventh decade.

Spaces too narrow for

light sourceMulti pattern solution

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Materials and construction to help cheat Moore’s Law

To help overcome the stalling of processing power, and the death of Moore’s Law, chip

makers are looking at two distinct ways to improve transistor performance:

i) New materials

ii) New construction techniques

Exhibit 51: The innovations described above are just some of the many options being

explored


i) New materials

Whilst doping (using impurities to change the properties of semiconductors) has always

been a factor in semiconductor manufacturing, material science is opening up new

avenues and materials to be used in the next wave of semiconductors. Below we profile

some of the current technologies as well as some of the next-generation materials that

could be used to continue the advancement of semiconductor processing power.

Strained silicon was developed as a means of enhancing electron mobility/speed

through a transistor and is achieved by growing a strained layer of silicon atop a

silicon germanium substrate. Products featuring strained silicon were initially

introduced by Intel at the 90nm node in 2003 and subsequently enabled chip

manufacturers to continue to provide higher levels of performance and lower energy

consumption while continuing to scale transistor dimensions.

High-k metal gate. To combat the effects of scaling-induced leakage, Intel introduced

a “high-k metal gate” into its process in 2007. The “gate” acts as a switch that controls

the flow of electrons in a circuit. Below the gate lies an insulator, or gate oxide, that

helps the gate focus its power.

Initially, manufacturers reduced the thickness of the insulator as they made the width

of the gate smaller, eventually down to a thickness of about 5 atoms. At this point the

insulator became ineffective, leading to power drain and lower performance. To

counteract this, manufacturers developed “high-k” dielectric materials for the insulator

and replaced standard polysilicon gates with proprietary metal ones (the “recipes” are

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still closely guarded). High-k metal gates allowed manufacturers to continue pursuing

smaller transistor sizes.

Exhibit 52: Flow of electrons through channel A positive voltage on the metal gate forms a path for electrons to flow through the channel


III-V (Indium, Gallium, Arsenide, etc.). Materials classified as III-V are those that

contain elements from group III and group V of the periodic table. Currently III-V

materials are primarily used in optoelectronics for telecommunications applications,

lasers, and LEDs.

Given the high electron mobility (i.e., the speed that electrons move across a

semiconductor) of III-V materials (up to 50X that of silicon), chip companies are seeking

to integrate them ith on silicon in order to drive performance gains. Adoption of III-V

materials on silicon could potentially displace the strained silicon and germanium

layers of transistors.

In our discussions with market participants, many view adoption at the 10nm node as

unlikely and indicate that the earliest timeframe may be at the 5nm node, in the mid-to-

late 2020s. However, we believe there is a chance that adoption could come after 5nm,

given the difficulty associated with implementing both new III-V materials and EUV

lithography at the same node.

Graphene. Graphene is a single atomic layer of graphite arranged in a hexagonal

lattice, and is the world’s first 2D material. Graphene’s higher electron mobility should

allow for transistors with even greater levels of performance than III-V materials,

though we note that research scientists and manufacturers have faced problems with

producing a form of graphene that has sufficient conductor and insulator properties to

allow it to replace transistors.

ii) New construction techniques

Although the advancements in semiconductor technology have been perceived to be

bound by the limits of physics (i.e., a transistor can not be made smaller than an atom)

there is a lot of research and development being done to create efficiencies elsewhere

along the production chain.

FinFET (Fin Field Effect Transistor). FinFETs were commercially introduced in 2011

with Intel’s 22nm process technology and has a conducting channel that resembles a

fin. Planar transistors were used prior to FinFET transistors. Wrapped around the fin is

a gate that controls the flow of electrons. The ability to turn the flow of electrons “on”

and “off” is what generates the 1s and 0s that serve as the foundation of modern

computing processes. The resulting effect of the “fin” is to create a structure that

maintains the small feature size, but also has a vertical dimension to allow for more

contact area around the gate (3 points vs. 1 prior, see Exhibit 53). This new structure

allowed chip manufacturers to continue production at smaller geometries without

losing performance/power efficiency due to leakage.

Source Drain

Gate oxide

Metal gate

Source Drain

Positive charge applied

Electron flow

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Exhibit 53: Planar vs 3D transistor 3D transistors allow for more surface area contact with the channel as device structures become

smaller


3D NAND. Imagine if every building in Manhattan was one story – it would be highly

unlikely that the island could support its current population. Now imagine that every

building in Manhattan is the same height as the World Trade Center – it becomes a lot

easier to fit everyone. This simple analogy illustrates the benefits of 3D NAND, which is

essentially layers and layers of memory cells. NAND memory is what is used for

storage in devices like smartphones, tablets, laptops, and portable hard drives.

Traditionally, memory cells (“bits”) were scaled down to keep pace with Moore’s Law

and allow for more memory/chip. As device scaling became harder, it became more

difficult for memory manufacturers to increase the amount of memory/chip.

Manufacturers began vertically stacking memory cells in 2013 as a means of keeping

pace with generational density improvements and driving the cost of memory down.

Exhibit 54: Density is improved by scaling bits Illustration of planar NAND

Exhibit 55: Density improved by stacking vertically Illustration of 3D NAND structure



Gate all around (GAA)/nanowires. Similar to FinFETs, GAA structures further address

the problems associated with scaling device sizes smaller. The key concept behind

GAA structures is that contact area is increased by creating four contact points for the

gate as opposed to three as is the case with 3D FinFETs (see Exhibit 56). The “all-

around” structure allows the transistor to control the flow of electrons more easily and

prevent performance loss. Current efforts have been able to produce circuits with

effective dimensions of approximately 13nm, which is slightly larger than the 10nm

circuits we expect Intel to release in 2017. We believe GAAs will replace FinFETs just as

FinFETs replaced planar structures, sometime after the 5nm node, though we note that

the manufacturing challenges are substantial given the radically different process

required to manufacture nanowire structures.

Planar transistor

substrate substrate

3D transistor

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Exhibit 56: Gate all around (GAA) structure GAA structures allow for more surface area contact with the channel compared to 3D FinFET


Commercialising the evolution of the semiconductor

In our previous discussions with Intel and as recently as the Intel Developer Forum (mid-

August 2016), management has demonstrated confidence in its ability to economically

scale to the 10nm and 7nm nodes, noting that 10nm cost/transistor is actually below the

historical trend. However, management has said EUV (extreme ultraviolet lithography) will

be needed to effectively produce 5nm chips. Intel is becoming increasingly confident that

in the next couple of years they will see an EUV tool that can provide stable power, which

should allow manufacturers to employ this technology.

That said, Mark Bohr, Intel’s director of process architecture and integration, has noted in

prior discussions with us that his team is working on other technologies to make 5nm

possible without EUV, including materials engineering. Mr. Bohr highlighted past

developments such as strained silicon, high-k metal gates, and FinFET as examples of the

types of projects the company is researching for implementation on future nodes, though

the company did not go into detail on its plans. Given that EUV has long been seen as a

game changer and is expected to finally be available at the 5nm node, we view Intel’s

continued focus on materials enabled innovations as illustrative of the importance of AMs

in the semiconductor market.

Key semi/SPE companies looking at alternate conductor materials:

Intel – Market share leader in consumer and data center microprocessors.

TSMC – Leading foundry used for manufacturing of applications processors and GPUs.

Samsung – One of the leading producers of memory chips and applications processors.

Applied Materials – Semiconductor production equipment company focused on

materials-enabled innovation.

source drainGate all around structure

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Case studies

CASE STUDIES

1. Water filtration: Creating a sustainable future

2. Energy storage: The shift to renewables

3. Nanomedicine: A plethora of possibility

4. 5G communications: Speeding up the future

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CASE STUDY 1 Water filtration: Creating a sustainable future

Population growth, climate change and urban creep are all placing increased pressure on

the world’s natural ecosystem. Water is becoming an increasingly scarce commodity. The

World Health Organisation (WHO) estimates that over 1 bn people do not have access to

clean water, and over 5,000 people die every day from deaths attributable to unsafe water,

sanitation and hygiene. The organization cites “better tools and procedures to improve and

protect drinking water quality” to improve water quality and maximize health benefits.

Exhibit 57: Sub-Saharan Africa has extremely scarce

sources of renewable water Total renewable water resources per capita (2013)

Exhibit 58: Almost US$8bn is spent on improving water

quality and sanitation in emerging markets US$bn spend on water and sanitation by NGOs and

governments in developing markets

Source: UNESCO

Source: OECD

To combat the challenge of ensuring sufficient potable water, governments and NGOs are

committing significant amounts of their R&D budgets to deliver a sustainable water

balance. NGOs are spending almost US$3bn pa directly on water and sanitation in

developing countries.

Bottling water is a means of transporting potable water, but the consumption and disposal

of plastics places other environmental strains on the environment. For instance, the

amount of energy required to meet US demand for plastic bottles is equivalent to 17mn

barrels of oil.

-40%

-20%

0%

20%

40%

60%

0

2

4

6

8

10

12

2000 2002 2004 2006 2008 2010 2012 2014

Tota

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endit

ure

(U

S$ b

n)

Government NGO's % yoy growth (RHS)

Advanced materials: Nanotechnology, graphene

Potential addressable markets:

US$8bn pa spent by governments on drinking water.

US$5bn pa spent on the global separation & membrane technology market with expectations for the market to double by 2020.

Bottled water market is around US$90bn with double-digit growth rates.

The opportunities:

Potential to prevent some of the 5,000 deaths per day from unsafe water, sanitation and hygiene.

Nanotechnology is being explored as a way of developing improved filtration/separation membranes.

Graphene is a possible material given its water-repelling properties.

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Exhibit 59: Global bottled water market has almost

doubled in size in the past five years, placing increasing

pressure on the ecosystem. Bottled water consumption per capita

Exhibit 60: Chinese consumption of bottled water has

more than doubled in the past five, years indicating the

pressures from the development of emerging markets Bottled water consumption – total in gallons

Source: Bottledwater.org

Source: Bottledwater.org

The ability to provide a simple quality filtration process has the potential to both tackle the

emerging market water shortage and challenge the profit pools of the bottled water market.

Advanced Material filtration

Against this backdrop, graphene comes to the fore, particularly given its hydrophobic

properties. It has been discovered that thin membranes made from graphene oxide are

impermeable to all gases and vapors, besides water, and further research has shown it can

be made to allow separation of atomic materials that are very similar in size ‒ enabling

filtration at 9x the normal speed. This opens the door to the possibility of using seawater as

a drinking water resource, in a fast and relatively simple way. Furthermore, given

graphene’s small weight and size, the technology has the capability to be lightweight,

energy-efficient and environmentally friendly when making water filters and desalinators.

Companies: Nanofiltration the focus

Lockheed Martin has developed and patented a new energy efficient graphene-based water

desalination technology. The “Perforene” membrane is a one-atom thick sheet of graphene,

featuring holes all the way down to one nanometer in length. Integrating the membrane

within a filter of a larger system can trap unwanted substances and concurrently improve

the flow through of water molecules, reducing clogging and pressure on the membrane

and filter, lowering energy usage (by 10-20%) of the overall system.

Other firms working in nanofiltration include Dow, which is looking at a pressure-driven

separation process that employs a semi-permeable membrane and the principles of cross-

flow filtration. GE, Pentair, 3M, Koch and Siemens are also active in the field.

2009 2014

1 Mexico 59.2 69.8

2 Thailand 26.3 65.1

3 Italy 49.0 53.1

4 Belgium-Luxembourg 35.5 39.4

5 Germany 34.7 39.2

6 United Arab Emirates 25.0 41.6

7 France 34.4 37.4

8 United States 27.6 34.0

9 Spain 27.7 32.1

10 Hong Kong 22.2 32.7

11 Lebanon 30.1 28.2

12 Croatia 26.5 29.1

13 Slovenia 26.6 28.4

14 Hungary 27.9 28.8

15 Saudi Arabia 27.0 29.9

16 Switzerland 25.6 28.0

17 Austria 23.1 24.3

18 Brazil 22.0 25.5

19 Poland 19.7 25.0

20 Romania 19.8 23.2

7.8 10.3

Rank CountriesGallons per Capita

Global Average

2009 2014

1 China 5692 11459 15.0%

2 United States 8453 10875 5.2%

3 Mexico 892 8645 4.6%

4 Indonesia 2941 5307 12.5%

5 Brazil 4255 5151 3.9%

6 Thailand 1743 4376 20.2%

7 Italy 2949 3241 1.9%

8 Germany 2843 3227 2.6%

9 France 2165 2411 2.2%

10 India 1112 2069 13.2%

Top 10 Total 33044 56760 7.8%

All Others 14513 17948 4.3%

World Total 47558 74708 6.9%

Millions of GallonsRank Countries CAGR (%)

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Energy storage: The shift to renewables

CASE STUDY 2

According to the International Energy Agency, global energy demand is expected to rise by

c.50% to 2030, with over 80% of current demand supplied by fossil fuels. In an increasingly

densely populated, but also environmentally conscious world, the ability to generate,

harness and utilise energy sources efficiently is vital to the sustainability and development

of the quality of life of the global citizen. Quite simply, renewable energy sources are the

way of the future.

Exhibit 61: Energy demand set to rise c.50% by 2040 Global energy demand

Exhibit 62: Energy storage part of the broader supply

chain complex Energy supply chains

Source: EIA

Source: EIA

Nanotech is set to play a vital role as an enabler and solution provider to one of the biggest

challenges we face. In the view of buckyball inventor, Nobel Prize winning Richard Smalley,

“Nanotechnology is the key to achieving a sustainable energy future.”

Nanotech is set to be influential in the early parts of the energy value chain, creating

efficiencies and better performance in a number of key areas. The International Energy

Commission estimates that 1 in every 2 research papers written about electrical storage

technology references nanotech.

500

550

600

650

700

750

800

850

2011 2012 2020 2025 2030 2035 2040

Quad

rill

ion

Btu

Sources Change Distribution Storage Usage

Advanced materials: Nanotechnology, graphene,

OLEDs


Supercapacitors: US$1bn

Nano-optimised photovoltaics: US$1bn

Catalysts: US$6bn

Nano-optimised fuel cells: US$5bn

The opportunities:

Nano-particles can alter and enhance the properties of bulk materials to deliver superior performance

Energy storage and conversion in solar cells can be greatly enhanced

Nano-electrodes can improve battery storage, discharge and re-charge rates

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The use of nanotech in energy storage is a significantly rapidly growing area of nanotech

and AM, which has been driven by the green shift and mainstream utilisation of concepts

such as solar panels, EVs and off-grid battery storage.

In the area of energy storage, applications of nanotech mainly apply to improving

conversion rates, boosting recharge and dissipation rates, increasing efficiency and

lowering costs. The prime nano-areas being explored in the field include:

Nano electrodes: Perform similar to normal electrodes but on a nano scale. The high

surface to volume area of the nanoparticles lead to larger electrode contact areas and

thus enhance mass transport. The faster transport of the electrons results in enhanced

electrical and ionic conductivity – improving charge times is one example. Lithium-ion

batteries, supercapacitors, fuel cells and solar cells have all seen improved energy

performance due to nano-electrodes. Graphene/graphite are emerging materials but

other ‘traditional’ electrode/anode materials such as the metals (indium, zinc, etc.) are

also being broken down in to their nano-scale. Companies exposed include Sony,

Toshiba and Manz.

Nanocomposites: The inclusion of nanoparticles into a larger sample material. The

creation of nanocomposites results in enhanced physical properties of the macro

material. In energy storage, nanocomposites can be found in the electrolytic gel of

solar panels, the coating of the panels and in super capacitors. Nanoparticles are also

thought to be of use in devices converting carbon dioxide in to hydrocarbon fuels.

Companies exposed include BASF, 3M, and DuPont.

Nanocatalysts: The greater surface area of nanoparticles accelerates the catalytic

capacity of materials. Nanoscale platinum is used in hydrogen fuel cells and the use of

nanomaterials for catalytic convertors could improve environmental emissions.

The total addressable market for nanotech in energy storage is an exceptionally difficult

figure to define. As the end-product demand structurally accelerates (i.e., Tesla electric car

technology increases penetration rate) the need for AMs will intensify – both in terms of

growing physical demand, but also continued technological demand to continue to

improve the processes/technology that help deliver the cars their green credentials.

We estimate the current addressable market for nanotech in energy storage is around

US$10-15bn, and we believe this could grow to around US$20bn by 2020 (the base case

figure is based off International Electrotechnical Commission (IEC) research, and we have

utilised a 10% demand growth rate scenario). More aggressive demand growth of the end-

markets could see the TAM increased to an upper band of some US$30bn.

Visit our “Great Battery Race” portal for our latest thematic and company research on energy storage solutions.

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https://360.gs.com/gs/portal/home/fdk/?st=1&n=/portal/announcement/research/greatbatteryrace



Just as penicillin did in the 1940s, nanomedicine has the potential to revolutionize the way

we treat disease. The key advantage of nanomedicine is that it operates on the same scale

as many natural biological processes and molecules. If, utilizing the properties of

nanomedicine, medicines can be delivered and targeted directly to the impacted cells in the

specific dose required, the potential for a successful outcome may be increased. A targeted

drug approach should also reduce side effects and improve morbidity. Thus specific

tailored drugs and targeted delivery methods have the potential to increase the

personalization of disease treatment.

Along with disease treatment and management, nanotech has the potential to improve the

detection and prevention of disease. Through new contrast agents, nanomedicine can

improve on current diagnostic imaging capabilities, leading to earlier detection of disease

and ideally an improved prognosis.

The development of nanomedicine and nanobiology could significantly alter not only our

ability to prevent and treat disease, but also the profit pools of the existing pharmaceutical

and medical industries. Nanomedicine is already a rapidly growing industry with around

US$16bn of sales in 2015. R&D spend is growing with the NNI spending upward of

US$300m pa supporting R&D in to nanomedicine.

As an illustration, a 10% penetration of the existing US cancer treatment industry

represents a +US$10bn market for nanomedicine. These attractive profit pools, combined

with the medical benefits are what is attracting both small and large industry players such

as Intellia and Merrimack to lift their investment in and exposure to nanomedicine.

Advanced materials: Nanotechnology


The US oncology market is over US$100bn per annum. Assuming 10% penetration, the TAM for oncology nanomedicine in the US is potentially US$12bn plus per annum.

The opportunities:

Penicillin revolutionized the drug market in the 1940/50s. Nanotechnology could deliver the same scale of change in coming years.

Drug delivery can be targeted through nanotechnology to attack only sick cells, reducing side effects.

Diagnostics can be improved through nanotechnology allowing early detection and treatment.

Nanomedicine: A plethora of possibility

CASE STUDY 3

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Exhibit 63: With viruses, antibodies and bacteria all operating on the nanoscale in our bodies, the utilisation of

nanotechnology in medical applications will allow for more specific targeting of diseases, leading to potentially better

recovery

Source: NCI, Goldman Sachs Global Investment Research.

The history and benefits of nanomedicines

One of the earliest nanomedicines, Doxil, was approved by the FDA in 1995. Since then

numerous other nanomedicines have been commercialized and approved with a broad

range of applications including treatment of cancer, fungal infections, and infection

prevention.

The physical properties of nanoparticles have a number of clinical benefits that are of

interest to clinicians and industry. Operating at the nanoscale could improve both the

efficacy of treatments and how drugs interact with the human body, i.e. toxicity and side

effects. The benefits of nanotech for the pharmaceutical industry are based on:

Improved solubility: Nanoparticles have higher solubility than their bulk counterparts,

potentially enabling drugs with poor solubility to be reinvestigated. In addition, higher

solubility reduces the need to use organic solvents, which are toxic.

Higher permeability: The size of nanoparticles may enable them to cross physiological

barriers such as the blood brain barrier, or enter tumors. This has important

implications for drug delivery in numerous disease areas such as oncology and

neurology.

Longer circulation: Nanoparticles can be engineered to increase the circulation time of

drugs.

Large surface area: This increases the reactiveness of nanoparticles. The greater

surface allows nanoparticles drugs to engage with the impacted cells, allowing greater

ability for the drugs to work.

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Exhibit 64: Pharmaceutical nanotechnology

Source: European Medicines Agency

From a drug delivery perspective, using nanomaterials to deliver drugs has several benefits

compared to existing delivery methods such as injections, pills etc.

Polymer-based materials can allow for better pharmacokinetics and bio distribution

of drugs

Triggered response techniques would allow drugs imbedded in the body to be

released when certain triggers are induced, allowing rapid and targeted drug delivery.

Key areas of focus

Nanomedicine has a vast array of potential applications, with two major interrelated areas

of focus, including drug delivery and disease diagnosis and monitoring.

Drug delivery: Nanopharmaceuticals can either be reduced to the nanoscale or

engineered at the nanoscale, and functionalized to have specific characteristics. These

characteristics can enable targeted drug delivery directly to the area of focus along

with customized drug release, improving treatment efficacy and reducing side effects

for the patient.

Medical diagnostics: Earlier detection of disease would aid the ability of physicians

to treat these diseases, for instance detecting cancer pre metastasis, potentially

improving treatment success rates.

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Drug delivery

Through physical and chemical modifications, nanomedicines can be “functionalized” to

have certain characteristics, enabling different clinical applications. In particular,

nanoparticles can be engineered to target particular areas of the body through the use of

biomarkers and molecules such as peptides and nucleic acids. These nanoparticles can be

further modified so that, once delivered, they release their drug load in a controlled

manner. Triggers for drug delivery may include pH, light, or tumor specific conditions. Key

benefits of this targeted drug delivery include reduced dose size and lower side effects (it is

important to note that the nanoscale of these drugs can also result in disparate side effects/

toxicities to their bulk counterparts).

This technology has been and has the potential to be applied in numerous clinical areas

including cancer and neurodegenerative disorders. The majority of clinically available

nanomedicines in this are either liposomes or polymer-based nanoformulations.

Treatment of solid tumors

Numerous different treatment methods have been developed and are in development for

cancers using nanomedicine. In treating solid tumors, nanoparticles are able to utilize the

enhanced permeability and retention (ERP) effect whereby the reduced lymphatic drainage

of tumors result in nanoparticles being accumulated and retained. This ERP effect is also

referred to as passive targeting.

Neurological diseases

Treatment of diseases of the central nervous system (CNS) are challenged by the existence

of barriers, including the blood brain barrier (BBB) and blood cerebrospinal fluid barrier

(BCSF), which selectively prevent molecules from crossing from the bloodstream into the

CNS. Molecules blocked from entering the brain, for instance, include most traditional

pharmaceuticals and chemotherapy.

An exciting horizon for nanomedicine is therefore the development of nanomolecules that

are able to cross the BBB/BCSF given their small size and molecular weight. Conditions that

could be targeted include neuro-oncology, Alzheimer’s/dementia, stroke and epilepsy.

Medical diagnostics

In addition to the treatment of disease, nanomedicine shows promise in detection and

monitoring.

Medical imaging

According to the National Cancer Institute, traditional diagnostic imaging (DI) techniques in

use today are only able to detect cancers once tissue has altered visibly. This means that

diagnosis could occur post metastasis (spread to secondary organ/ tissue), greatly reducing

the likelihood that treatment will be successful. In addition, to gain further information on

tumors (e.g. malignant or benign), an invasive biopsy must often be taken.

Nanotech has the potential to improve upon this status quo, principally through new

contrast agents. Nanoparticles such as superparamagnetic iron oxide nanoparticles can be

engineered to target and accumulate at the tumor site. In addition, contrast agents could be

developed that identify characteristics of the tumor such as type and the stage the cancer is

at.

Biomarkers

The National Cancer Institute defines biomarkers (biological marker) as “a biological

molecule found in blood, other body fluids, or tissues that is a sign of a normal or

abnormal process, or of a condition or disease. A biomarker may be used to see how well

the body responds to a treatment for a disease or condition”. Nanomedicine offers the

potential to detect changes that have occurred in only a small number of cells.

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Quantum dots (QD) are a type of nanomedicine commonly cited for this purpose, given

that these nanocrystals are fluorescent, display different colors depending on size, and are

far brighter in vivo than organic dyes. In addition, QDs are able to circulate throughout the

body due to their small size, enabling tumors to be targeted. However, as is the case with a

number of potential nanomedicines, whilst QDs show tremendous potential, there are

toxicity concerns that must be addressed before human application

Multipurpose nanomedicines - theranostic

An ideal outcome from the development of nanomedicine would be the commercialization

of nanoparticles that have both therapeutic and diagnostic uses (theranostic - therapy

diagnostic). For example, a drug that is able to target and release its load at a particular

tumor site, while also enabling DI to track the progress and success of this treatment.

In addition to the applications discussed above, there are a multitude of existing and

potential clinical applications of nanomedicine. Key areas of interest include non-viral gene

vector delivery, regenerative medicine/ tissue engineering and implantable nanodevices.

The opportunity: Looking forward/profit pools

The opportunities for nanotech to alter the medicinal and pharmaceutical field are

significant and wide ranging. To provide some context to the scale of opportunity and

potential profit pools, we look at two areas where we see nanotech having a significant

impact: i) oncology, which has existing commercialized nanomedicines, and ii) gene

therapy, which is in the investigational phase.

New frontiers in cancer treatment and market opportunity (>US$10bn market)

According to the Centres for Disease Control and Prevention (CDC), cancer was the cause

of just under 600,000 deaths in the US in 2014, the second-highest cause after

cardiovascular disease. The National Cancer Institute (NCI) expects that in the US there will

be 1,690,000 new cases diagnosed with c. 600,000 deaths in 2016 alone.

Current treatments include chemotherapy, immunotherapy, surgery and radiation therapy.

These have downsides including their non-targeted nature; for example, chemotherapy

impacts healthy tissue as well the tumor of interest, resulting in common side effects such

as hair loss.

Nanomedicines for the treatment of cancer have been commercially available for a number

of years; indeed, Doxil was first approved by the FDA in 1995 for the treatment of AIDS-

related Kaposi’s sarcoma and has now gone generic. The majority of these approved

treatments, however, are non-targeted. Therefore, they are commonly considered first-

generation nanomedicines. For example, first generation breast cancer treatment Abraxane

targets tumors passively through the ERP effect.

Second generation cancer treatments would actively target tumor tissue, effectively a form

of personalized medicine. There are currently no second generation nanoparticles clinically

available; however, there are a number of actively targeted treatments in phase I or II

clinical trials.

Treatment costs in the US amounted to just under US$125bn in 2010, and the NCI projects

total expenditure of US$156bn in 2020. If we assume a 10% penetration of nano-oncology,

the potential is for a c.US$12bn plus market per annum.

Nanomedicine in genetic disorders

Gene therapy, and its closely related field genome editing, are being investigated for a

wide range of genetic disorders, with a small number of therapies approved in different

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jurisdictions. Broadly, gene therapies involve inserting into a cell a copy of the desired

gene, whereas genome editing ‘edits’ genomes inside the cell.

In developing a gene therapy, a key area of consideration is the delivery method chosen. A

large number of programs utilise viral vectors, e.g. adeno-associated viral vectors (AAV),

such as Spark Therapeutic’s SPK-FIX for hemophilia B, however, viral vectors face safety

concerns. Nanotechnologies provide potential alternatives to viral vectors, i.e. non-viral or

synthetic vectors, and are being explored by a number of biotech companies:

Intellia Therapeutics (NTLX): Intellia is investigating the use of genome editing

technology CRISPR/ Cas9 for a range of conditions including alpha 1 antitrypsin

deficiency, transthyretin amyloidosis and hepatitis B. As these diseases relate to the

liver, Intellia is utilizing lipid nanoparticles to deliver the technology to the liver.

Editas Medicine (EDIT): Similarly to Intellia, Editas identifies lipid nanoparticles as a

means of targeting CRISPR to the disease area. Editas is investigating diseases ranging

from Duchenne Muscular Dystrophy, alpha 1 antitrypsin deficiency and cystic fibrosis.

To illustrate the genetic conditions being investigated by these companies, we look at

alpha 1 antitrypsin deficiency. Current treatment includes replacement therapy, where

patients are infused with plasma derived alpha 1 antitrypsin. CSL and Grifols are the two

largest producers of alpha 1 antitrypsin; the Marketing Research Bureau estimates that

total US sales of alpha 1 antitrypsin were US$690mn in 2015.

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We see GaN as a potential disrupter of the LDMOS power amplifier market

Gallium nitride (GaN) is a III-V compound used most often in radio frequency (RF) devices

for mobile communications as well as communications infrastructure applications. Key

suppliers include MACOM (MTSI, covered by Mark Delaney) and Qorvo (QRVO, covered by

Toshiya Hari). Given that they are III-V compounds and thus have higher bandgaps, GaN

devices offer significantly better performance over other compound and silicon-based

technologies today. Due to the higher bandgap, GaN chips are able to perform better than

silicon devices at higher frequencies, voltages, power densities and temperatures, making

them particularly applicable to 5G networks, which are expected to utilize spectrum at

higher frequencies than today’s networks. On the network infrastructure side, we see GaN

as a potential disrupter of the ~US$1bn LDMOS power amplifier market.

Exhibit 65: GaN offers greater performance compared to GaAs and silicon chips in power

and RF applications GaN vs. GaAs and Si on key metrics

Source: GaN Systems, Goldman Sachs Global Investment Research.

5G communications: Speeding up the future

CASE STUDY 4

Advanced materials: Gallium nitride (GaN)


Communications infrastructure: US$1bn

Defense applications: US$1bn

The opportunities:

Enabling use of higher frequency spectrum

Driving faster data speeds and greater bandwidth

Providing greater energy efficiency

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Today RF devices primarily utilize compound technologies such as gallium arsenide (GaAs)

and silicon-based technologies such as silicon germanium (SiGe). GaN currently occupies

niche segments including radar and comms/cable infrastructure, with many of these

applications are subsidized by government funding (see Exhibit 66). Out of a total high

performance RF market of ~US$3bn, GaN revenue accounted for US$300mn in 2015 and is

expected to grow to almost US$1bn by 2022.

Exhibit 66: The GaN market was about US$300mn in 2015 and is expected to grow to

almost US$1bn by 2022 GaN market by application

Source: Yole Development

While GaN technology has been in development for several years, chip companies have

only recently begun applying GaN in more applications. Applications for GaN include RF

applications for frequencies of 10GHz+, power semiconductors, and DC switching, where

GaN technology is able to withstand significantly higher voltages.

Key drivers of future growth for GaN include 5G base station deployment and defense

spending. For example, Qorvo estimates that these areas could enable the GaN market to

potentially grow at a 25% CAGR. One of the biggest trends that we are monitoring though

is the coming 5G network infrastructure build out. 5G will extend the range of frequencies

used for cellular communication in order to be able to handle increased traffic capacity and

enable bandwidths required for very high data rates. In the past, high-frequency spectrum

has not played a major role in wireless networks because the shorter wavelengths do not

travel over long distances. While 5G technology does not fundamentally overcome this

challenge, we expect 5G to be deployed as carriers densify their networks and believe

higher frequency spectrum will become increasingly useful because signals will not need

to travel as far from cell sites to reach customers.

Communications networks are made up of base stations that transmit and receive radio

signals. Currently, the power amplifier portion of the base station market is dominated by

LDMOS power amplifiers, though we highlight the potential for GaN to disrupt this

dynamic given that 5G networks are expected to utilize higher spectrum frequencies, i.e. up

to 100GHz, which are better serviced by GaN technology.

Wireless infrastructure,

55%

Defense, 37%

CATV, 4%Other, 4%

Satellite communications,

1%

For more on the coming 5G revolution, including companies that could benefit, see Simona Jankowski’s April 2016 deep dive.

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Companies

MACOM (MTSI, covered by Mark Delaney) MACOM is an analog and photonic

semiconductor company with about 70% of its revenue derived from the communications

end-market. MACOM’s revenue has historically been tied to applications in long-haul

optical, CATV, and PON. However, the company is targeting new growth opportunities in

base stations, metro, and datacenters. MACOM offers GaN on silicon power amplifier chips

and hopes to be able to gain share in the roughly US$1 bn annual base station PA end-

market. We believe that while MACOM has the potential to penetrate this market in late

2016 or 2017 with its GaN on silicon technology for LTE (as MACOM’s approach to GaN can

be done at competitive costs), and that the higher frequencies used in 5G will require the

performance of GaN semiconductors that companies such as MACOM offer. In addition,

MACOM believes its GaN technology will allow it to improve performance in other

applications such as microwaves and its catalog portfolio.

Qorvo (QRVO, covered by Toshiya Hari). Qorvo is an RF communication company with

about 20% of revenue derived from the comms infrastructure and defense markets (the

remainder is primarily from handset RF solutions). Like MACOM, the company offers GaN

process expertise and has highlighted both 5G and military applications (i.e. radar and

electronic warfare applications) as key driver of growth for its infrastructure product

portfolio. Management has noted that new defense applications represent a potential

US$500mn+ market for GaN products.

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An interview with Dr. John Chen, Phoenix Venture Partners

Dr. John Chen, Phoenix Venture Partners

Dr. Chen is a Managing

General Partner and co-

founder of Phoenix Venture

Partners (PVP). Phoenix

Venture Partners is a

specialist fund that looks for

transformative advanced

materials innovations,

including novel engineered

materials, new device architectures, and advanced process

technologies and tools. PVP invests in innovations that

enable entirely new products, dramatic performance

improvements of existing products, enhanced-efficiency,

and/or greener manufacturing processes for major industries

such as Consumer Electronics, Drug

Delivery, Chemicals, Energy Generation, Energy

Storage, Solar, Water, and Building Materials, to name a

few.

Dr. Chen earned his BS in Physics, PhD in Materials Science

and Engineering, and MBA from MIT. In addition to

his investment and board roles with PVP, Dr. Chen serves on

the Commercialization Advisory Board for Oregon Built

Environment & Sustainability Technologies (BEST), is an

active mentor to several startups through the MIT Venture

Mentoring Service, and is a long-time member of the

Materials Research Society

Advanced materials is an extremely wide ranging and

broad topic, so let’s start off by asking how you would

define an advanced material.

You are absolutely correct to observe that advanced

materials encompasses an extremely diverse and broad set

of technologies. At PVP, we have loosely defined advanced

materials as a collection of technologies that include novel

engineered materials, device architectures, processes, and

metrology/tools which enable disruptive performance

through the precision engineering, design, and or

measurement of molecular scale properties. Advanced

materials or materials science based technologies are also

interdisciplinary in nature drawing

from physics, chemistry, biology, and the engineering

disciplines.

What, in your view, makes the advanced materials

space so attractive from a VC perspective?

PVP sees the advanced materials space as highly attractive

from an investment perspective because these

technologies have the potential to generate significant

value by enabling next-generation product performance as

well as delivering disruptive cost reduction and

manufacturing efficiencies for both well-established and

rapidly emerging markets. The platform nature of

advanced materials technologies also often allows them to

enable applications that transcend industry verticals which

can lead to multiple exit scenarios. The advanced materials

space is experiencing a sustained wave of rapid innovation

which has been fueled by decades of R&D investment by

both the private and public sectors. From a VC perspective,

the advanced materials space is also attractive because

startups don’t face the extreme competitive pressures of

other sectors (e.g., software, consumer internet) and very

few venture capital firms are active in this area and even

fewer have the necessary teams, expertise or track record

to be successful in this space.

In terms of your investment process, would you

describe it as top-down (sector preferences then drill

down into the most appropriate company to reflect the

theme) or bottom up (very company fundamental

specific)?

By the very nature of the advanced materials space, PVP

employs a unique investment process which is a bit of

both. Without going into too much detail, PVP proactively

researches and looks at the unmet needs of critically

important industry sectors (e.g. energy storage, consumer

electronics, life sciences, etc.) and keeps track of disruptive

emerging technology trends (e.g. printed electronics, 3D

printing, graphene, etc.) to formulate our investment thesis

while also maintaining an extensive network and robust

global scouting platform to find the most promising

startups developing breakthrough technologies.

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As a VC, what makes investing in the advanced materials

space different from other sectors? What are the unique

skills you need to succeed here versus elsewhere? What

are the main challenges you face operating in the

advanced materials space?

Several characteristics of the advanced materials space

make it a challenging sector to invest in for generalist VCs.

The enormous scope, diversity and technical complexity of

advanced materials technologies requires an investment

team which has deep domain knowledge in specific fields of

science and engineering (i.e. PhD level) as well as

multidisciplinary and complimentary backgrounds (e.g.

materials science, physics, chemistry, life sciences, etc.) to

be able to adequately evaluate investment opportunities and

recognize truly disruptive companies from me-too’s.

Compared to other sectors, a greater degree of detailed

knowledge of IP and IP strategy is key to creating and

preserving long-term value. It is also critically important that

investors in this space have had first-hand experience of the

challenges and hurdles startups face building a successful

company and getting advanced materials technologies

adopted by the market so that they can navigate portfolio

companies through the inevitable difficult times. Last but not

least, experienced investors in the advanced materials space

know from the “school of hard knocks” which business

models to pursue and which to avoid.

Is there one or two sectors within the advanced

materials space, e.g. Solar, Building materials, consumer

electronics etc. that you believe stands out in terms of

growth?

Many sectors within advanced materials are growing rapidly

but off hand two that come to mind are energy storage

materials and graphene.

Can you give us a brief guide into a typical investment

lifecycle? How long is the process between idea

generation and actual investment in a company? What

are the main sticking points/obstacles you face in that

lifecycle?

Every investment is unique and follows its own timeline and

venture capital is more of an art than a science. Some of our

investments take 3 months from start to end and others we

have tracked for three years until they satisfied our criteria

for investment and we closed the investment.

Advanced materials is an evolving yet under invested area of innovation. Why do you think that is? Is it because of the technical skillset and expertise required, or lack of awareness of how rapidly the industry is growing?

Advanced materials is an under-served sector for venture

capitalists for many reasons. The formidable barriers to

entry and being successful I alluded to in the previous

question dissuade many investors from taking the plunge.

Second, for the uninitiated an untrained, much of the

innovation falls under the radar screen of mainstream

media and is also often miscategorized and lumped into

other “hotter” sectors such as clean tech, energy, life

sciences and IT. Finally, for reasons I don’t entirely

understand, investors have a mistaken perception that

advanced materials is a “niche” market and not very

attractive. I’d like to point out to your readers that the

entire semiconductor industry is based on advanced

materials innovations (e.g. silicon processing, copper

deposition, photolithography, etc.), the revolution in

electric vehicles is being driven largely by advances in new

materials for Li-ion batteries (e.g., cathodes, anodes,

separators, electrolytes, etc.), and the widespread adoption

of cheap solar energy was in part enabled by new

materials (e.g. CdTe, CIGS), just to name a few examples.

How large and industry do you think the broad

categories of advanced materials can become?

PVP investment professionals have been directly involved

in the advanced materials space for decades and these

estimates are provided by our own proprietary research as

well as from publicly available market research on sectors

which overlap with and are decent proxies for advanced

materials such as nanotechnology, clean tech,

printed/organic electronics, additive manufacturing, etc.

That said, systematic and accurate coverage of this space

and its impact on industry is far from perfect. If I were to

make a best guess I would say US$3trn is the industrial

impact of advanced materials innovation over the next ten

years, which is likely to be conservative and

underestimates the true impact.

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Disclosure Appendix

Reg AC

We, Craig Sainsbury, Jay Shyam, CFA, Shuhei Nakamura, Toshiya Hari, Marcus Shin, Charles Long, Robert D. Boroujerdi, Hugo Scott-Gall, Ian

Abbott, Shin Horie, Richard Manley, Brian Lee, CFA, Matthew McNee, Grace Fulton, Giuni Lee, Ken Lek, Ayaka Misonou, Frank He, Julian Zhu, Eddie

Ow, CFA, Anita Dinshaw and Isabelle Dawson, hereby certify that all of the views expressed in this report accurately reflect our personal views about

the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly,

related to the specific recommendations or views expressed in this report.

I, Peter Callahan, hereby certify that all of the views expressed in this report accurately reflect my personal views, which have not been influenced by

considerations of the firm's business or client relationships.

Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and

market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites

of several methodologies to determine the stocks percentile ranking within the region's coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate

of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend

yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for

in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

GS SUSTAIN

GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list

includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and

superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate

performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the

environmental, social and governance issues facing their industry).

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Craig Sainsbury: Australia-Resources. Shuhei Nakamura: Japan-Advanced Materials sector. Toshiya Hari: America-Semiconductor Capital Equipment,

America-Semiconductors. Marcus Shin: Korea Technology. Ian Abbott: Australia-Healthcare. Brian Lee, CFA: America-Clean Energy, America-Solar

Energy. Matthew McNee: Australia-Agriculture, Australia-Building Materials, Australia-Chemicals. Frank He: Asia Pacific Conglomerates, China Clean

Energy. Julian Zhu: Asia Commodities Companies.

America-Clean Energy: Acuity Brands Inc., Cree Inc., Silver Spring Networks Inc., TerraVia Holdings, Universal Display Corp., Veeco Instruments Inc..

America-Semiconductor Capital Equipment: Applied Materials Inc., Keysight Technologies Inc., Lam Research Corp., SunEdison Semiconductor Ltd.,

Teradyne Inc..

America-Semiconductors: Analog Devices Inc., Broadcom Ltd., Intel Corp., Linear Technology Corp., Maxim Integrated Products, Nvidia Corp., NXP

Semiconductors NV, Qorvo Inc., Skyworks Solutions Inc., Texas Instruments Inc., Xilinx Corp..

America-Solar Energy: 8point3 Energy Partners, First Solar Inc., SolarCity Corp., SolarEdge Technologies Inc., SunPower Corp., Sunrun Inc.,

TerraForm Global Inc., TerraForm Power Inc., Vivint Solar Inc..

Asia Commodities Companies: ACC Ltd., Aluminum Corp. of China (A), Aluminum Corp. of China (H), Ambuja Cements, Angang Steel (A), Angang

Steel (H), Anhui Conch Cement (A), Anhui Conch Cement (H), Baoshan Iron & Steel, BBMG Corp. (A), BBMG Corp. (H), Beijing Enterprises Water

Group, Beijing Originwater Technology, Beijing Water Business Doctor, China Coal Energy (A), China Coal Energy (H), China Conch Venture Holdings,

China Everbright International Ltd., China Hongqiao Group, China Molybdenum Co., China National Building Material, China Resources Cement

Holdings, China Shenhua Energy (A), China Shenhua Energy (H), Dongjiang Environmental Co. (A), Dongjiang Environmental Co. (H), GrandBlue

Environment Co., Jiangxi Copper (A), Jiangxi Copper (H), Maanshan Iron & Steel (A), Maanshan Iron & Steel (H), Shree Cement Ltd., Tianjin Capital

Environmental (A), Tianjin Capital Environmental (H), Tianjin Motimo Membrane Tech, TUS-Sound, Ultratech Cement, Yanzhou Coal Mining (A),

Yanzhou Coal Mining (H), Zhaojin Mining Industry, Zijin Mining (A), Zijin Mining (H).

Asia Pacific Conglomerates: Beijing Enterprises Holdings, Cheung Kong Infrastructure, China Gas Holdings, China Merchants Holdings, China

Resources Gas Group, China Suntien Green Energy, CITIC Ltd., CK Hutchison Holdings, COSCO Pacific, ENN Energy Holdings, Fosun International,

Galaxy Entertainment Group, Hutchison Port Holdings, Jardine Matheson, Kunlun Energy Co., Legend Holdings, Melco Crown Entertainment (ADR),

Melco International Development, MGM China, MTR Corp., Sands China, Shanghai Industrial, Sinopec Kantons, SJM Holdings, Summit Ascent

Holdings, Swire Pacific, Tianhe Chemicals Group, Towngas China, Wharf Holdings, Wheelock and Co., Wynn Macau.

Australia-Agriculture: Costa Group, GrainCorp Ltd., Nufarm.

Australia-Building Materials: Adelaide Brighton, Boral, CSR, James Hardie.

Australia-Chemicals: Incitec Pivot Ltd., Orica Ltd..

Australia-Healthcare: Ansell, Australian Pharmaceutical Inds., Cochlear Ltd., CSL Ltd., EBOS Group, Fisher & Paykel Healthcare, Healthscope Ltd.,

Medibank Private Ltd., NIB Holdings, Primary Health Care, Ramsay Health Care, ResMed Inc., Sigma Pharmaceuticals, Sonic Healthcare.

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Australia-Resources: Alumina, BHP Billiton, Fortescue Metals Group, Iluka Resources, Independence Group, Newcrest Mining, Northern Star

Resources Ltd., OZ Minerals, Regis Resources, Rio Tinto, Sandfire Resources, South32 Ltd., Western Areas.

China Clean Energy: Canadian Solar Inc., China High Speed Transmission, GCL-Poly Energy Holdings, JinkoSolar Holding, Longi Silicon Materials,

Shenzhen Clou Electronics Co., Singyes Solar, Sungrow Power Supply Co., Trina Solar, Xinjiang Goldwind (A), Xinjiang Goldwind (H), Xinyi Solar

Holdings.

Japan-Advanced Materials sector: Daicel, Daido Steel, Hitachi Metals, JFE Holdings, Kansai Paint, Kobe Steel, Kuraray, Nippon Carbon, Nippon Paint

Holdings, Nippon Shokubai, Nippon Steel & Sumitomo Metal, Tokyo Steel Manufacturing, Toray Industries, UACJ.

Korea Technology: Samsung Electro-Mechanics, Samsung Electronics, Samsung SDI Co., Samsung SDS Co., Seoul Semiconductor, SK Hynix Inc..

Company-specific regulatory disclosures

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Documents

ROFILES IN INNOVATION · EQUITY RESEARCH | September 27, 2016 Faster, Stronger, Smaller, Lighter PROFILES IN INNOVATION Advanced Materials Jay Shyam, CFA +61(3)9679-1972 [email protected]